SYCAMORE NETWORKS INC, 424B4, 1999-10-22

SYCAMORE NETWORKS INC
424B4, 1999-10-22
TELEPHONE & TELEGRAPH APPARATUS

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<PAGE>
Filed pursuant to Rule 424(b)(4)
Registration No. 333-84635

PROSPECTUS

7,475,000 Shares

[LOGO OF SYCAMORE NETWORK APPEARS HERE]

COMMON STOCK

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Sycamore Networks, Inc. is offering 7,475,000 shares of its common stock. This
is our initial public offering and no public market currently exists for our
shares.

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

Our common stock has been approved for quotation on the Nasdaq National Market
under the symbol "SCMR."

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

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

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PRICE $38 A SHARE

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<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Sycamore
-------- ------------- -----------
<S> <C> <C> <C>
Per Share............................... $38.00 $2.66 $35.34
Total................................... $284,050,000 $19,883,500 $264,166,500
</TABLE>

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

Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers
on October 27, 1999.

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

MORGAN STANLEY DEAN WITTER

LEHMAN BROTHERS

J.P. MORGAN & CO.

DAIN RAUSCHER WESSELS
a division of Dain Rauscher Incorporated

October 21, 1999
<PAGE>

Inside front cover shows the back of a man working at a computer and Sycamore's
products in the background. The following text appears over the products: The
Art of Intelligent Optical Networking.

<PAGE>

Gate has a center title: The Evolution of The Intelligent Optical Network. A
graphic shows the progression of a transmission among various buildings through
a system with our products.

<PAGE>

TABLE OF CONTENTS

<TABLE>
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Page
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<S> <C>
Prospectus Summary.................. 4
Risk Factors........................ 7
Special Note Regarding Forward-
Looking Statements................. 17
Use of Proceeds..................... 18
Dividend Policy..................... 18
Capitalization...................... 19
Dilution............................ 20
Selected Financial Data............. 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 22
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business......................... 29
Management....................... 39
Certain Transactions............. 47
Principal Stockholders........... 48
Description of Capital Stock..... 49
Shares Eligible for Future Sale.. 52
Underwriters..................... 54
Legal Matters.................... 56
Experts.......................... 56
Where You Can Find More
Information..................... 56
Index to Financial Statements.... F-1
</TABLE>

Until November 15, 1999, all dealers that buy, sell or trade the common
stock, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.

3
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified by the more detailed information and
financial statements and notes appearing elsewhere in this prospectus.

SYCAMORE NETWORKS, INC.

We develop and market products that transport voice and data traffic over
wavelengths of light. Our products are designed to enable our customers to
quickly and cost effectively create usable network capacity over existing fiber
and thereby to create new high speed data services. Our target customers are
new and established providers of local voice and data transport services, long
distance carriers, Internet service providers, cable operators, foreign
telephone companies and carriers who provide services to other carriers, all of
which we refer to as service providers. These companies may provide such high
speed data services as access to the Internet, high speed data connections
between company sites, video conferencing and remote access to corporate
databases. We believe that the existing public network is unable to meet the
demand for high speed data transport services that are driving network growth.
As data traffic on the public network continues to grow at rates that surpass
available network capacity, we believe that service providers will require new
solutions to relieve network congestion and create new data services.

We call our products intelligent optical networking products because they
are designed to transmit and manage data directly on wavelengths of light, for
transmission over fiber optic cable. This will improve the efficiency of the
network, because data can be moved across the network and managed entirely in
the optical medium. In contrast, the existing public network is based on a
transmission technology, known as SONET/SDH, which requires optical signals
travelling across the network to be converted into electrical signals at each
network transit point, and then re-converted into optical signals for transport
to the next transit point. The multiple conversions required in a SONET/SDH
network increase network complexity and cost. Our products are based on a
common software architecture that we believe has a number of significant
benefits, including accelerating our release of new products and enabling our
customers to upgrade their networks without significant new capital equipment
or retraining.

Prior to May 1999, we were a development stage company principally engaged
in research and development. We shipped our first product in May 1999, and all
of our revenues to date have been from sales of this product to one customer,
Williams Communications. We have incurred significant losses since our
inception and as of July 31, 1999 we had an accumulated deficit of $20.2
million.

Our products are designed to address the current and future needs of service
providers by offering an end-to-end optical networking solution that provides
the following benefits:

. Improves Network Flexibility and Scalability. Our software-based
equipment is designed to allow service providers to improve the
flexibility and the ability to expand their networks without the long
lead times and large initial capital investment presently required for a
network buildout.

. Enables Rapid Service Delivery. Our products are designed to shorten the
time it takes for service providers to increase bandwidth and provide
services.

. Facilitates Introduction of New Data Services and Creation of New Revenue
Opportunities for Service Providers. The software-based intelligence of
our products allows us to rapidly introduce new features into our
products, which can in turn be offered as new services by service
providers to their customers.

. Protects Existing Investments. Our products are designed to enable
service providers to increase the functionality and improve the
performance of their networks without sacrificing their existing
infrastructure investments in SONET/SDH equipment.

We market our products through a direct sales force and intend to establish
relationships with selected original equipment manufacturers and other
marketing partners, both domestically and internationally. In addition, we work
collaboratively with our customers and prospective customers to help them
identify and create new high speed data services that they can offer to their
customers. We believe that this assistance is an integral aspect of our sales
and marketing efforts.

4
<PAGE>

We are a Delaware corporation. Our principal executive offices are located
at 10 Elizabeth Drive, Chelmsford, Massachusetts 01824 and our telephone number
is (978) 250-2900. Our World Wide Web site address is www.sycamorenet.com. The
information in the Web site is not incorporated by reference into this
prospectus. Sycamore Networks, SN 6000, SN 8000, SilvxSource, SilvxManager, SN
16000 and SilvxONMS are our trademarks. This prospectus also contains
trademarks of other companies.

THE OFFERING

<TABLE>
<S> <C>
Common stock offered............ 7,475,000 shares
Common stock to be outstanding
after this offering............. 78,031,337 shares
Use of proceeds................. We intend to use the net proceeds from
this offering for general corporate purposes,
including working capital and capital
expenditures, and the repayment of certain
indebtedness. See "Use of Proceeds."
Nasdaq National Market symbol... "SCMR"
</TABLE>

The above information is based upon the number of shares of common stock
outstanding as of July 31, 1999 and excludes 1,686,300 shares of common stock
issuable upon exercise of outstanding options at an average exercise price of
$1.36 per share and 18,638,700 shares of common stock reserved for future
issuance under our stock plan as of July 31, 1999.

5
<PAGE>

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

<TABLE>
<CAPTION>
Period from Inception
(February 17, 1998) Year Ended
through July 31, 1998 July 31, 1999
--------------------- -------------
Statement of Operations Data:
<S> <C> <C>
Revenues................................... $ -- $ 11,330
Total operating expenses................... 793 22,893
Loss from operations....................... (793) (20,049)
Net loss................................... (693) (19,490)
Pro forma basic and diluted net loss per
share (unaudited)......................... $ (.04) $ (.51)
Weighted average shares used in computing
pro forma basic and diluted net loss per
share (unaudited)......................... 18,756 38,145
</TABLE>

Weighted average shares used in computing pro forma basic and diluted net
loss per share shown above exclude unvested shares of common stock subject to
repurchase rights, which totalled 5,256,000 and 12,087,000 for the period from
inception (February 17, 1998) through July 31, 1998 and year ended July 31,
1999, respectively. The pro forma as adjusted column in the balance sheet data
below gives effect to the conversion of our outstanding preferred stock into
common stock upon the closing of this offering, the sale of the 7,475,000
shares of common stock in this offering at the initial public offering price
of $38.00, after deducting the underwriting discounts and commissions and
estimated offering expenses payable by us and the anticipated application of
the estimated net proceeds.

<TABLE>
<CAPTION>
As of July 31, 1999
--------------------
Pro Forma
Actual as Adjusted
------- -----------
<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and marketable securities........... $28,989 $287,005
Working capital............................................ 40,450 299,563
Total assets............................................... 57,912 315,928
Long-term obligations, less current portion................ 4,054 --
Redeemable convertible preferred stock..................... 55,771 --
Total stockholders' equity (deficit)....................... (13,623) 305,315
</TABLE>

Except as set forth in the financial statements or as otherwise indicated,
all information in this prospectus:

. reflects the conversion of all outstanding shares of our redeemable
convertible preferred stock into 47,283,225 shares of common stock upon
the closing of the offering;

. reflects a 3-for-1 stock split of the common stock effected in August
1999; and

. reflects the filing, as of the closing of the offering, of our amended
and restated certificate of incorporation and the adoption of our amended
and restated by-laws implementing certain provisions described below
under "Description of Capital Stock--Delaware Law and Certain Charter and
By-Law Provisions; Anti-Takeover Effects."

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

6
<PAGE>

RISK FACTORS

This offering and an investment in our common stock involve a high degree
of risk. You should consider carefully the risks described below before you
decide to buy our common stock.

Risks Related to Our Business

We Expect That Substantially All Of Our Revenues Will Be Generated From A
Limited Number Of Customers And Our Revenues Will Not Grow If We Do Not
Successfully Sell Products To These Customers

We currently have only one customer, Williams Communications. Williams is
not contractually committed to purchase any minimum quantities of products
from us. We expect that in the foreseeable future substantially all of our
revenues will continue to depend on sales of our intelligent optical
networking products to Williams and a limited number of potential new
customers. Williams is currently using our SN 6000 product in its internal
network and plans in the future to introduce commercial services based on this
product. We cannot assure you that Williams will introduce commercial services
on a timely basis, if at all, and any delay in such introduction or failure to
introduce such services would seriously harm our revenues, results of
operations and financial condition. The rate at which our current and
prospective customers purchase products from us will depend, in part, on their
success in selling communications services based on these products to their
own customers. Any failure of current or prospective customers to purchase
products from us for any reason, including any determination not to install
our products in their networks or downturn in their business, would seriously
harm our ability to build a successful business.

We Have Been In Business For A Short Period Of Time And Your Basis For
Evaluating Us Is Limited

We were founded in February 1998 and shipped our first intelligent optical
networking product in May 1999. We have limited meaningful historical
financial data upon which to base projected revenues and planned operating
expenses and upon which investors may evaluate us and our prospects. In
addition, our operating expenses are largely based on anticipated revenue
trends and a high percentage of our expenses are and will continue to be
fixed. You should consider the risks and difficulties frequently encountered
by companies like ours in a new and rapidly evolving market. Our ability to
sell products, and the level of success, if any, we achieve, depends, among
other things, on the level of demand for intelligent optical networking
products, which is a new and rapidly evolving market.

Our Failure To Increase Our Revenues Would Prevent Us From Achieving And
Maintaining Profitability

We have incurred significant losses since inception and expect to continue
to incur losses in the future. As of July 31, 1999, we had an accumulated
deficit of $20.2 million. We have not achieved profitability on a quarterly or
annual basis, and anticipate that we will continue to incur net losses. We
cannot be certain that our revenues will grow or that we will generate
sufficient revenues to achieve or sustain profitability. We have large fixed
expenses and we expect to continue to incur significant and increasing sales
and marketing, product development, administrative and other expenses. As a
result, we will need to generate significantly higher revenues to achieve and
maintain profitability.

We Are Entirely Dependent On Our Line Of Intelligent Optical Networking
Products And Our Future Revenue Depends On Their Commercial Success

Our future growth depends on the commercial success of our line of
intelligent optical networking products. To date, our SN 6000 Intelligent
Optical Transport product and SN 8000 Optical Add/Drop product are the only
products that have been shipped to a customer. We intend to develop and
introduce new products and enhancements to existing products in the future. We
cannot assure you that we will be successful in completing the development or
introduction of these products. Failure of our current or planned products to
operate as expected could delay or prevent their adoption. If our target
customers do not adopt, purchase and successfully deploy our current and
planned products, our revenues will not grow significantly.

7
<PAGE>

Because Our Products Are Complex And Are Deployed In Complex Environments,
They May Have Errors Or Defects That We Find Only After Full Deployment, Which
Could Seriously Harm Our Business

Our intelligent optical networking products are complex and are designed to
be deployed in large and complex networks. Because of the nature of the
products, they can only be fully tested when completely deployed in very large
networks with high amounts of traffic. To date, the SN 6000 and the SN8000 are
the only products that have been shipped to a customer, and that customer is
currently using our products solely in its internal network. Our customers may
discover errors or defects in the hardware or the software, or the product may
not operate as expected, after it has been fully deployed. If we are unable to
fix errors or other problems that may be identified in full deployment, we
could experience:

. loss of or delay in revenues and loss of market share;

. loss of customers;

. failure to attract new customers or achieve market acceptance;

. diversion of development resources;

. increased service and warranty costs;

. legal actions by our customers; and

. increased insurance costs.

The Long And Variable Sales Cycles For Our Products May Cause Revenues And
Operating Results To Vary Significantly From Quarter To Quarter

A customer's decision to purchase our intelligent optical networking
products involves a significant commitment of its resources and a lengthy
evaluation, testing and product qualification process. As a result, our sales
cycle is likely to be lengthy. Throughout the sales cycle, we spend
considerable time and expense educating and providing information to
prospective customers about the use and features of our products. Even after
making a decision to purchase, we believe that our customers will deploy the
products slowly and deliberately. Timing of deployment can vary widely and
depends on the skills of the customer, the size of the network deployment, the
complexity of the customer's network environment and the degree of hardware
and software configuration necessary. Customers with significant or complex
networks usually expand their networks in large increments on a periodic
basis. Accordingly, we may receive purchase orders for significant dollar
amounts on an irregular and unpredictable basis. Because of our limited
operating history and the nature of our business, we cannot predict these
sales and deployment cycles. The long sales cycles, as well as our expectation
that customers will tend to sporadically place large orders with short lead
times, may cause our revenues and results of operations to vary significantly
and unexpectedly from quarter to quarter.

We Will Not Be Successful If We Do Not Grow Our Customer Base Beyond Our
Initial One Customer

Our future success will depend on our attracting additional customers
beyond our initial one customer. The growth of our customer base could be
adversely affected by:

. customer unwillingness to implement our new optical networking
architecture;

. any delays or difficulties that we may incur in completing the
development and introduction of our planned products or product
enhancements;

. new product introductions by our competitors;

. any failure of our products to perform as expected; or

. any difficulty we may incur in meeting customers' delivery requirements.

8
<PAGE>

The Intelligent Optical Networking Market Is New And Our Business Will
Suffer If It Does Not Develop As We Expect

The market for intelligent optical networking products is new. We cannot be
certain that a viable market for our products will develop or be sustainable.
If this market does not develop, or develops more slowly than we expect, our
business, results of operations and financial condition would be seriously
harmed.

If We Do Not Respond Rapidly To Technological Changes, Our Products Could
Become Obsolete

The market for intelligent optical networking products is likely to be
characterized by rapid technological change, frequent new product
introductions and changes in customer requirements. We may be unable to
respond quickly or effectively to these developments. We may experience
design, manufacturing, marketing and other difficulties that could delay or
prevent our development, introduction or marketing of new products and
enhancements. The introduction of new products by competitors, market
acceptance of products based on new or alternative technologies or the
emergence of new industry standards, could render our existing or future
products obsolete.

In developing our products, we have made, and will continue to make,
assumptions about the standards that may be adopted by our customers and
competitors. If the standards adopted are different from those which we have
chosen to support, market acceptance of our products may be significantly
reduced or delayed and our business will be seriously harmed. In addition, the
introduction of products incorporating new technologies and the emergence of
new industry standards could render our existing products obsolete.

In addition, in order to introduce products incorporating new technologies
and new industry standards, we must be able to gain access to the latest
technologies of our customers, our suppliers and other network vendors. Any
failure to gain access to the latest technologies could impair the
competitiveness of our products.

Customer Requirements Are Likely To Evolve, And We Will Not Retain
Customers or Attract New Customers If We Do Not Anticipate And Meet Specific
Customer Requirements

Our current and prospective customers may require product features and
capabilities that our current products do not have. To achieve market
acceptance for our products, we must effectively and timely anticipate and
adapt to customer requirements and offer products and services that meet
customer demands. Our failure to develop products or offer services that
satisfy customer requirements would seriously harm our ability to increase
demand for our products.

We intend to continue to invest in product and technology development. The
development of new or enhanced products is a complex and uncertain process
that requires the accurate anticipation of technological and market trends. We
may experience design, manufacturing, marketing and other difficulties that
could delay or prevent the development, introduction or marketing of new
products and enhancements. The introduction of new or enhanced products also
requires that we manage the transition from older products in order to
minimize disruption in customer ordering patterns and ensure that adequate
supplies of new products can be delivered to meet anticipated customer demand.
Our inability to effectively manage this transition would cause us to lose
current and prospective customers.

Our Market Is Highly Competitive, And Our Failure To Compete Successfully
Would Limit Our Ability to Increase Our Market Share

Competition in the public network infrastructure market is intense. This
market has historically been dominated by large companies, such as Ciena
Corporation, Cisco Systems, Lucent Technologies and Nortel Networks. We may
face competition from other large telecommunications companies who may enter
our market. In addition, a number of private companies have announced plans
for new products to address the same network problems which our products
address. Many of our current and potential competitors have significantly
greater

9
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selling and marketing, technical, manufacturing, financial, and other
resources, including vendor-sponsored financing programs. Moreover, our
competitors may foresee the course of market developments more accurately than
we do and could in the future develop new technologies that compete with our
products or even render our products obsolete. Due to the rapidly evolving
markets in which we compete, additional competitors with significant market
presence and financial resources may enter those markets, thereby further
intensifying competition.

In order to compete effectively, we must deliver products that:

. provide extremely high network reliability;

. scale easily and efficiently with minimum disruption to the network;

. interoperate with existing network designs and equipment vendors;

. reduce the complexity of the network by decreasing the need for
overlapping equipment;

. provide effective network management; and

. provide a cost-effective solution for service providers.

In addition, we believe that a knowledge of the infrastructure requirements
applicable to service providers, experience in working with service providers
to develop new services for their customers, and an ability to provide vendor-
sponsored financing are important competitive factors in our market. We do not
currently have the ability to provide vendor-sponsored financing and this may
influence the purchasing decision of prospective customers, who may decide to
purchase products from one of our competitors who offers such financing.

If we are unable to compete successfully against our current and future
competitors, we could experience price reductions, order cancellations and
reduced gross margins, any one of which could materially and adversely affect
our business, results of operations and financial condition.

We Are Likely To Face Difficulties In Obtaining And Retaining Customers If
We Do Not Expand Our Sales Organization And Our Customer Service And Support
Operations

Our products and services require a sophisticated sales effort targeted at
a limited number of key individuals within our prospective customers'
organizations. This effort requires specialized sales personnel and consulting
engineers. We are in the process of building our direct sales force and plan
to hire additional qualified sales personnel and consulting engineers.
Competition for these individuals is intense, and we might not be able to hire
the kind and number of sales personnel and consulting engineers required for
us to be successful. In addition, we believe that our future success is
dependent upon our ability to establish successful relationships with a
variety of distribution partners. If we are unable to expand our direct sales
operations, or establish and expand an indirect sales channel, we may not be
able to increase market awareness or sales of our products, which may prevent
us from achieving and maintaining profitability.

We currently have a small customer service and support organization and
will need to increase our staff to support new customers. The support of our
products requires highly trained customer service and support personnel.
Hiring customer service and support personnel is very competitive in our
industry because there are a limited number of people available with the
necessary technical skills and understanding of our market. Once we hire them,
they may require extensive training in our intelligent optical networking
products. If we are unable to expand our customer service and support
organization and train them rapidly, we may not be able to increase sales of
our products.

We Depend Upon Contract Manufacturers And Any Disruption In These
Relationships May Cause Us To Fail To Meet The Demands Of Our Customers And
Damage Our Customer Relationships

We rely on a small number of contract manufacturers to manufacture our
products in accordance with our specifications, and to fill orders on a timely
basis. Celestica, Inc. provides comprehensive manufacturing services,
including assembly, test, control and shipment to our customers, and procures
material on our behalf. We may

10
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not be able to effectively manage our relationship with Celestica, and it may
not meet our future requirements for timely delivery. Each of our contract
manufacturers also builds products for other companies, and we cannot be
certain that they will always have sufficient quantities of inventory
available to fill orders placed by our customers, or that they will allocate
their internal resources to fill these orders on a timely basis. We do not
have long-term supply contracts with these manufacturers. We do not have
internal manufacturing capabilities. Qualifying a new contract manufacturer
and commencing volume production is expensive and time consuming and could
result in a significant interruption in the supply of our products. If we are
required or choose to change contract manufacturers, we may lose revenue and
damage our customer relationships.

We Rely On Single Sources For Supply Of Certain Components And Our Business
May Be Seriously Harmed If Our Supply Of Any Of These Components Is Disrupted

We currently purchase several key components, including commercial digital
signal processors, RISC processors, field programmable gate arrays, SONET
transceivers and erbium doped fiber amplifiers, from single or limited
sources. We purchase each of these components on a purchase order basis and
have no long-term contracts for these components. Although we believe that
there are alternative sources for each of these components, in the event of a
disruption in supply, we may not be able to develop an alternate source in a
timely manner or at favorable prices. Such a failure could hurt our ability to
deliver our products to our customers and negatively affect our operating
margins. In addition, our reliance on our suppliers exposes us to potential
supplier production difficulties or quality variations. Any such disruption in
supply would seriously impact present and future sales and revenue.

The Unpredictability Of Our Quarterly Results May Adversely Affect The
Trading Price Of Our Common Stock

Our revenues and operating results will vary significantly from quarter to
quarter due to a number of factors, many of which are outside of our control
and any of which may cause our stock price to fluctuate. The primary factors
that may affect us include the following:

. fluctuation in demand for intelligent optical networking products;

. the timing and size of sales of our products;

. the length and variability of the sales cycle for our products;

. the timing of recognizing revenue and deferred revenue;

. new product introductions and enhancements by our competitors and
ourselves;

. changes in our pricing policies or the pricing policies of our
competitors;

. our ability to develop, introduce and ship new products and product
enhancements that meet customer requirements in a timely manner;

. our ability to obtain sufficient supplies of sole or limited source
components;

. increases in the prices of the components we purchase;

. our ability to attain and maintain production volumes and quality levels
for our products;

. the timing and level of prototype expenses;

. costs related to acquisitions of technology or businesses; and

. general economic conditions as well as those specific to the
telecommunications, Internet and related industries.

11
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reporting and other administrative demands which will result from this
offering and the increasing size of our business. Our operating expenses are
largely based on anticipated organizational growth and revenue trends and a
high percentage of our expenses are, and will continue to be, fixed. As a
result, a delay in generating or recognizing revenue for the reasons set forth
above, or for any other reason, could cause significant variations in our
operating results from quarter to quarter and could result in substantial
operating losses.

Due to the foregoing factors, we believe that quarter-to-quarter
comparisons of our operating results are not a good indication of our future
performance. You should not rely on our results or growth for one quarter as
any indication of our future performance. It is likely that in some future
quarters, our operating results may be below the expectations of public market
analysts and investors. In this event, the price of our common stock will
probably decrease.

If Our Products Do Not Interoperate With Our Customers' Networks,
Installations Will Be Delayed Or Cancelled And Could Result In Substantial
Product Returns, Which Could Seriously Harm Our Business

Many of our customers will require that our products be designed to
interface with their existing networks, each of which may have different
specifications and utilize multiple protocol standards. Our customers'
networks contain multiple generations of products that have been added over
time as these networks have grown and evolved. Our products must interoperate
with all of the products within these networks as well as future products in
order to meet our customers' requirements. The requirement that we modify
product design in order to achieve a sale may result in a longer sales cycle,
increased research and development expense, and reduced margins on our
products. If we find errors in the existing software used in our customers'
networks, we must modify our products to fix or overcome these errors so that
our products will interoperate and scale with the existing software and
hardware. If our products do not interoperate with those of our customers'
networks, installations could be delayed, orders for our products could be
cancelled or our products could be returned. This would also seriously harm
our reputation, all of which could seriously harm our business and prospects.

Undetected Software Or Hardware Errors And Problems Arising From Use Of Our
Products In Conjunction With Other Vendors' Products Could Result In Delays or
Loss of Market Acceptance of Our Products

Networking products frequently contain undetected software or hardware
errors when first introduced or as new versions are released. We expect that
errors will be found from time to time in new or enhanced products after we
begin commercial shipments. In addition, service providers typically use our
products in conjunction with products from other vendors. As a result, when
problems occur, it may be difficult to identify the source of the problem.
These problems may cause us to incur significant warranty, support and repair
costs, divert the attention of our engineering personnel from our product
development efforts and cause significant customer relations problems. The
occurrence of these problems could result in the delay or loss of market
acceptance of our products and would likely have a material adverse effect on
our business, results of operations and financial condition. Defects,
integration issues or other performance problems in our products could result
in financial or other damages to our customers or could damage market
acceptance for our products. Our customers could also seek damages for losses
from us. A product liability claim brought against us, even if unsuccessful,
would likely be time consuming and costly.

Our Failure To Establish And Maintain Key Customer Relationships May Result
In Delays In Introducing New Products Or Cause Customers To Forego Purchasing
Our Products

Our future success will also depend upon our ability to develop and manage
key customer relationships in order to introduce a variety of new products and
product enhancements that address the increasingly sophisticated needs of our
customers. Our failure to establish and maintain these customer relationships
may adversely affect our ability to develop new products and product
enhancements. In addition, we may experience delays in releasing new products
and product enhancements in the future. Material delays in introducing new
products and enhancements or our inability to introduce competitive new
products may cause customers to forego purchases of our products and purchase
those of our competitors, which could seriously harm our business.

12
<PAGE>

Our Failure To Improve Our Internal Controls And Systems, And Hire Needed
Personnel, Could Impair Our Future Growth

We have expanded our operations rapidly since our inception. We continue to
increase the scope of our operations and have grown our headcount
substantially. For example, at January 31, 1999, we had a total of 48
employees and at September 1, 1999, we had a total of 173 employees. In
addition, we plan to continue to hire a significant number of employees this
year. Our growth has placed, and our anticipated growth will continue to
place, a significant strain on our management systems and resources. Our
ability to successfully offer our products and implement our business plan in
a rapidly evolving market requires an effective planning and management
process. We expect that we will need to continue to improve our financial,
managerial and manufacturing controls and reporting systems, and will need to
continue to expand, train and manage our work force worldwide. We may not be
able to implement adequate control systems in an efficient and timely manner.
Competition for highly skilled personnel is intense, especially in the New
England area. Any failure to attract, assimilate or retain qualified personnel
to fulfill our current or future needs could impair our growth.

We Depend On Our Key Personnel To Manage Our Business Effectively In A
Rapidly Changing Market And If We Are Unable To Retain Our Key Employees, Our
Ability To Compete Could Be Harmed

Our future success depends upon the continued services of our executive
officers and other key engineering, sales, marketing and support personnel,
who have critical industry experience and relationships that we rely on to
implement our business plan. None of our officers or key employees is bound by
an employment agreement for any specific term. We do not have "key person"
life insurance policies covering any of our employees. The loss of the
services of any of our key employees could delay the development and
introduction of, and negatively impact our ability to sell, our products.

If We Become Subject To Unfair Hiring Claims We Could Incur Substantial
Costs In Defending Ourselves

Companies in our industry whose employees accept positions with competitors
frequently claim that their competitors have engaged in unfair hiring
practices. We cannot assure you that we will not receive claims of this kind
in the future as we seek to hire qualified personnel or that those claims will
not result in material litigation. We could incur substantial costs in
defending ourselves or our employees against such claims, regardless of their
merits. In addition, defending ourselves from such claims could divert the
attention of our management away from our operations. One of our non-officer
sales employees has been sued by a former employer which has alleged, among
other things, that the employee improperly disclosed confidential information
of the former employer regarding its business dealings with our customer.
Although we are not a party to the lawsuit, we have chosen to assume the costs
of defending this lawsuit.

Our Ability To Compete Could Be Jeopardized If We Are Unable To Protect Our
Intellectual Property Rights From Third-Party Challenges

We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property
rights. We also enter into confidentiality or license agreements with our
employees, consultants and corporate partners, and control access to and
distribution of our software, documentation and other proprietary information.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy or otherwise obtain and use our products or technology.
Monitoring unauthorized use of our products is difficult and we cannot be
certain that the steps we have taken will prevent unauthorized use of our
technology, particularly in foreign countries where the laws may not protect
our proprietary rights as fully as in the United States. If competitors are
able to use our technology, our ability to compete effectively could be
harmed.

If Necessary Licenses Of Third-Party Technology Are Not Available To Us Or
Are Very Expensive, Our Products Could Become Obsolete

From time to time we may be required to license technology from third
parties to develop new products or product enhancements. We cannot assure you
that third party licenses will be available to us on commercially

13
<PAGE>

reasonable terms, if at all. The inability to obtain any third-party license
required to develop new products and product enhancements could require us to
obtain substitute technology of lower quality or performance standards or at
greater cost, either of which could seriously harm the competitiveness of our
products.

We Could Become Subject To Litigation Regarding Intellectual Property
Rights, Which Could Seriously Harm Our Business And Require Us To Incur
Significant Costs

In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. Although we have not
been involved in any intellectual property litigation, we may be a party to
litigation in the future to protect our intellectual property or as a result
of an allegation that we infringe others' intellectual property. Any parties
asserting that our products infringe upon their proprietary rights would force
us to defend ourselves and possibly our customers or manufacturers against the
alleged infringement. These claims and any resulting lawsuit, if successful,
could subject us to significant liability for damages and invalidation of our
proprietary rights. These lawsuits, regardless of their success, would likely
be time-consuming and expensive to resolve and would divert management time
and attention. Any potential intellectual property litigation also could force
us to do one or more of the following:

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

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

. redesign those products that use such technology.

If we are forced to take any of the foregoing actions, our business may be
seriously harmed.

We May Face Risks Associated With Our International Expansion That Could
Impair Our Ability To Grow Our Revenues Abroad

We intend to expand into international markets. This expansion will require
significant management attention and financial resources to develop
successfully direct and indirect international sales and support channels. We
may not be able to develop international market demand for our products.

We have limited experience in marketing and distributing our products
internationally and to do so, we expect that we will need to develop versions
of our products that comply with local standards. In addition, international
operations are subject to other inherent risks, including:

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

. difficulties and costs of staffing and managing foreign operations;

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

. unexpected changes in regulatory requirements;

. certification requirements;

. currency fluctuations;

. reduced protection for intellectual property rights in some countries;

. potentially adverse tax consequences; and

. political and economic instability.

We Face A Number Of Unknown Risks Associated With Year 2000 Problems That
Could Result In Claims Against Us Or Impair The Use Of Our Products By Our
Customers

The year 2000 computer issue creates a variety of risks for us. The year
2000 computer problem refers to the potential for system and processing
failures of date-related data as a result of computer-controlled systems using
two digits rather than four to define the applicable year. For example,
computer programs that have time-sensitive software may recognize a date
represented as "00" as the year 1900 rather than the year 2000. This

14
<PAGE>

could result in a system failure or miscalculations causing disruptions of
operations, including among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
The risks involve:

. potential warranty or other claims by our customers;

. errors in systems we use to run our business;

. errors in systems used by our suppliers;

. errors in systems used by our customers; and

. potential reduced spending by other companies on intelligent optical
network products as a result of significant spending on year 2000
remediation.

We have designed our products for use in the year 2000 and beyond and
believe they are year 2000 compliant. However, our products are generally
integrated into larger networks involving sophisticated hardware and software
products supplied by other vendors. Each of our customers' networks involves
different combinations of third party products. We cannot evaluate whether all
of their products are year 2000 compliant. We may face claims based on year
2000 problems in other companies' products or based on issues arising from the
integration of multiple products within the overall network. Although no year
2000 claims have been made against us, we may in the future be required to
defend our products in legal proceedings which could be expensive regardless
of the merits of these claims.

If our suppliers, vendors, major distributors, partners, customers and
service providers fail to correct their year 2000 problems, these failures
could result in an interruption in, or a failure of, our normal business
activities or operations. If a year 2000 problem occurs, it may be difficult
to determine which party's products have caused the problem. These failures
could interrupt our operations and damage our relationships with our
customers. Due to the general uncertainty inherent in the year 2000 problem
resulting from the readiness of third-party suppliers and vendors, we are
unable to determine at this time whether third party year 2000 failures could
harm our business and our financial results.

Our current and prospective customers' purchasing plans could be affected
by year 2000 issues if they need to expend significant resources to fix their
existing systems to become year 2000 compliant. This situation may reduce
funds available to purchase our products. In addition, customers may wait to
purchase our products until after the year 2000, which may reduce our revenue.

Any Acquisitions We Make Could Disrupt Our Business And Seriously Harm Our
Financial Condition

We intend to consider investments in complementary companies, products or
technologies. While we have no current agreements to do so, we may buy
businesses, products or technologies in the future. In the event of any future
purchases, we could:

. issue stock that would dilute our current stockholders' percentage
ownership;

. incur debt;

. assume liabilities;

. incur amortization expenses related to goodwill and other intangible
assets; or

. incur large and immediate write-offs.

Our operation of any acquired business will also involve numerous risks,
including:

. problems combining the purchased operations, technologies or products;

. unanticipated costs;

. diversion of management's attention from our core business;

15
<PAGE>

. adverse effects on existing business relationships with suppliers and
customers;

. risks associated with entering markets in which we have no or limited
prior experience; and

. potential loss of key employees, particularly those of the purchased
organizations.

We cannot assure you that we will be able to successfully integrate any
businesses, products, technologies or personnel that we might acquire in the
future and any failure to do so could disrupt our business and seriously harm
our financial condition.

Risks Related To The Securities Markets And This Offering

Our Stock Price May Be Volatile

Prior to this offering, you could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after this offering. The market for technology stocks has been
extremely volatile. The following factors could cause the market price of our
common stock to fluctuate significantly from the price paid by investors in
this offering:

. our loss of a major customer;

. the addition or departure of key personnel;

. variations in our quarterly operating results;

. announcements by us or our competitors of significant contracts, new
products or product enhancements, acquisitions, distribution
partnerships, joint ventures or capital commitments;

. changes in financial estimates by securities analysts;

. our sales of common stock or other securities in the future;

. changes in market valuations of broadband access technology companies;

. changes in market valuations of networking and telecommunications
companies; and

. fluctuations in stock market prices and volumes.

In addition, the stock market in general, and the Nasdaq National Market
and technology companies in particular, have experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the
operating performance of such companies. The trading prices of many technology
companies' stocks are at or near historical highs and these trading prices and
multiples are substantially above historical levels. These trading prices and
multiples may not be sustained. These broad market and industry factors may
materially adversely affect the market price of our common stock, regardless
of our actual operating performance. In the past, following periods of
volatility in the market price of a company's securities, securities class-
action litigation has often been instituted against such companies. Such
litigation, if instituted, could result in substantial costs and a diversion
of management's attention and resources.

Management May Apply The Proceeds Of This Offering To Uses That Do Not
Increase Our Profits Or Market Value

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

Insiders Will Continue To Have Substantial Control Over Sycamore After This
Offering And Could Limit Your Ability To Influence The Outcome Of Key
Transactions, Including Changes of Control

We anticipate that the executive officers, directors and entities
affiliated with them will, in the aggregate, beneficially own approximately
64% of our outstanding common stock following the completion of this

16
<PAGE>

offering. These stockholders, if acting together, would be able to influence
significantly all matters requiring approval by our stockholders, including
the election of directors and the approval of mergers or other business
combination transactions.

Provisions Of Our Charter Documents And Delaware Law May Have Anti-Takeover
Effects That Could Prevent A Change Of Control

Provisions of our amended and restated certificate of incorporation,
bylaws, and Delaware law could make it more difficult for a third party to
acquire us, even if doing so would be beneficial to our stockholders.

There May Be Sales Of A Substantial Amount Of Our Common Stock After This
Offering That Could Cause Our Stock Price To Fall

Our current stockholders hold a substantial number of shares, which they
will be able to sell in the public market in the near future. Sales of a
substantial number of shares of our common stock within a short period of time
after this offering could cause our stock price to fall. In addition, the sale
of these shares could impair our ability to raise capital through the sale of
additional stock.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. You can identify these statements by
forward-looking words such as "anticipate," "believe," "could," "estimate,"
"expect," "intend," "may," "should," "will" and "would" or similar words. You
should read statements that contain these words carefully because they discuss
our future expectations, contain projections of our future results of
operations or of our financial position or state other "forward-looking"
information. We believe that it is important to communicate our future
expectations to our investors. However, there may be events in the future that
we are not able to accurately predict or control. The factors listed above in
the section captioned "Risk Factors," as well as any cautionary language in
this prospectus, provide examples of risks, uncertainties and events that may
cause our actual results to differ materially from the expectations we
describe in our forward-looking statements. Before you invest in our common
stock, you should be aware that the occurrence of the events described in
these risk factors and elsewhere in this prospectus could have a material
adverse effect on our business, results of operations and financial position.

17
<PAGE>

USE OF PROCEEDS

We estimate that our net proceeds from the sale of the 7,475,000 shares of
common stock will be approximately $263,166,500 after deducting underwriting
discounts and commissions and estimated offering expenses payable by us.

The principal purposes of this offering are to establish a public market
for our common stock, to increase our visibility in the marketplace, to
facilitate future access to public capital markets, to provide liquidity to
existing stockholders and to obtain additional working capital.

We expect to use the net proceeds for general corporate purposes, including
working capital and capital expenditures, and the repayment of outstanding
amounts under our equipment lines of credit. Other than the amounts necessary
to repay the outstanding indebtedness, no specific amounts have been allocated
to any particular purpose. Our lines of credit consist of:

. a $1.0 million equipment line of credit which was converted into a term
loan as of June 30, 1999 and is required to be repaid in 30 equal monthly
installments commencing July 1, 1999. This line of credit bears interest
at the bank's prime rate plus .5% (8.5% at July 31, 1999) per annum and
is collateralized by all of our assets. At July 31, 1999, an aggregate of
$967,000 was outstanding under this line of credit; and

. a $5.0 million equipment line of credit which will be converted into a
term loan on January 31, 2000 and which will be required to be repaid in
36 equal monthly installments commencing February 1, 2000. This line of
credit bears interest at the bank's prime rate plus .5% (8.5% at July 31,
1999) per annum and is collateralized by all of our assets. At July 31,
1999, an aggregate of $4.2 million was outstanding under this line of
credit.

Although we may use a portion of the net proceeds to acquire businesses,
products or technologies that are complementary to our business, we have no
specific acquisitions planned. Pending such uses, we plan to invest the net
proceeds in investment grade, interest-bearing securities.

DIVIDEND POLICY

We have never paid or declared any cash dividends on our common stock or
other securities and do not anticipate paying cash dividends in the
foreseeable future. Our credit agreement with a commercial bank prohibits the
payment of dividends. Any future determination to pay cash dividends will be
at the discretion of the board of directors and will be dependent upon our
financial condition, results of operations, capital requirements, general
business condition and such other factors as the board of directors may deem
relevant.

18
<PAGE>

CAPITALIZATION

The following table sets forth our capitalization as of July 31, 1999. The
pro forma information gives effect to the conversion of all of our outstanding
redeemable convertible preferred stock. The pro forma as adjusted information
reflects the issuance and sale of the 7,475,000 shares of common stock offered
by us in this offering at the initial public offering price of $38.00 per
share and the application of the estimated net proceeds we expect to receive
from this offering. The outstanding share information excludes: (1) 1,686,300
shares of common stock issuable upon exercise of outstanding options as of
July 31, 1999, and (2) 18,638,700 shares of common stock reserved for future
issuance under our 1998 Stock Incentive Plan as of July 31, 1999. This table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other financial data
included elsewhere in this prospectus.

<TABLE>
<CAPTION>
As of July 31, 1999
-------------------------------
Pro Pro Forma
Actual Forma as Adjusted
-------- -------- -----------
(in thousands, except share
data)
(unaudited)
<S> <C> <C> <C>
Long-term debt, less current portion.......... $ 4,054 $ 4,054 $ --
-------- -------- --------
Redeemable convertible preferred stock, $.01
par value; 15,792,201 authorized, 15,761,075
issued and outstanding, actual; no shares
authorized, issued and outstanding, pro forma
and pro forma as adjusted.................... 55,771 -- --
-------- -------- --------
Stockholders' equity (deficit):
Preferred Stock, $.01 par value, 5,000,000
shares authorized, 0 shares issued and
outstanding on a pro forma basis............. -- -- --
Common stock, $.001 par value; 91,000,000
shares authorized, 23,273,112 shares issued
and outstanding, actual; 70,556,337 shares
issued and outstanding, on a pro forma basis;
250,000,000 shares authorized, 78,031,337
shares issued and outstanding, on a pro forma
as adjusted basis............................ 23 71 78
Additional paid-in capital.................... 30,826 86,549 349,709
Accumulated deficit........................... (20,183) (20,183) (20,183)
Notes receivable.............................. (360) (360) (360)
Deferred compensation......................... (23,929) (23,929) (23,929)
-------- -------- --------
Total stockholders' equity (deficit)........ (13,623) 42,148 305,315
-------- -------- --------
Total capitalization...................... $ 46,202 $ 46,202 $305,315
======== ======== ========
</TABLE>

19
<PAGE>

DILUTION

Sycamore's pro forma net tangible book value as of July 31, 1999, giving
effect to the conversion of all outstanding shares of redeemable convertible
preferred stock into common stock on the closing of this offering, was
approximately $42.1 million, or $.60 per share of common stock. Pro forma net
tangible book value per share represents our tangible net worth (tangible
assets less total liabilities) divided by the 70,556,337 shares of common
stock outstanding after giving effect to the conversion of all shares of
redeemable convertible preferred stock into common stock. After giving effect
to the issuance and sale of the shares of common stock offered by Sycamore in
this offering (at the initial public offering price of $38.00 per share) and
the receipt and application of the net proceeds from the sale of these shares,
Sycamore's pro forma net tangible book value at July 31, 1999 would have been
$305.3 million, or $3.91 per share. This represents an immediate increase in
pro forma net tangible book value to existing stockholders of $3.31 per share
and an immediate dilution to new investors of $34.09 per share. The following
table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share........................... $38.00
Pro forma net tangible book value per share before this
offering....................................................... $ .60
Increase in pro forma net tangible book value per share
attributable to new investors.................................. 3.31
-----
Pro forma net tangible book value per share after this offering... 3.91
------
Dilution per share to new investors............................... $34.09
======
</TABLE>

The following table summarizes on a pro forma basis, giving effect to the
conversion of all outstanding shares of redeemable convertible preferred stock
into common stock on the closing of this offering, as of July 31, 1999, the
difference between the number of shares of common stock purchased from
Sycamore, the total consideration paid to Sycamore, and the average price per
share paid by existing stockholders and by new investors (at the initial
public offering price of $38.00 per share before deduction of underwriting
discounts and commissions and estimated offering expenses payable by
Sycamore):

<TABLE>
<CAPTION>
Average
Shares Purchased Total Consideration Price
------------------ -------------------- Per
Number Percent Amount Percent Share
---------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 70,556,337 90.4% $ 58,733,000 17.1% $ .83
New investors................... 7,475,000 9.6 284,050,000 82.9 38.00
---------- ----- ------------ -----
Total......................... 78,031,337 100.0% $342,783,000 100.0%
===== =====
</TABLE>

The table above assumes no exercise of stock options outstanding at July
31, 1999. As of July 31, 1999, there were options outstanding to purchase
1,686,300 shares of common stock at a weighted average exercise price of $1.36
per share and 18,638,700 shares reserved for future grant or award under our
1998 Stock Incentive Plan. To the extent any of these options are exercised,
there will be further dilution to new investors. To the extent all of such
outstanding options had been exercised as of July 31, 1999, net tangible book
value per share after this offering would be $3.86 and total dilution per
share to new investors would be $34.14.

20
<PAGE>

SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with
the financial statements and notes thereto and with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and other
financial data included elsewhere in this prospectus. The statement of
operations data for the period from inception (February 17, 1998) through July
31, 1998 and the year ended July 31, 1999 and the balance sheet data as of
July 31, 1998 and 1999 are derived from the financial statements of Sycamore
audited by PricewaterhouseCoopers LLP, independent accountants, which are
included elsewhere in this prospectus.

<TABLE>
<CAPTION>
Period from
Inception
(February 17, Year
1998) through ended
July 31, 1998 July 31, 1999
------------- -------------
(in thousands, except per
share data)
<S> <C> <C>
Statement of Operations Data:
Revenues.......................................... $ -- $ 11,330
Cost of revenues.................................. -- 8,486
------ ---------
Gross profit.................................... -- 2,844
Operating expenses:
Research and development........................ 497 13,955
Sales and marketing............................. 92 4,064
General and administrative...................... 199 1,405
Amortization of stock compensation.............. 5 3,469
------ ---------
Total operating expenses...................... 793 22,893
------ ---------
Loss from operations.............................. (793) (20,049)
Interest income, net.............................. 100 559
------ ---------
Net loss.......................................... $ (693) $ (19,490)
====== =========
Basic and diluted net loss per share.............. $ (.55) $ (6.27)
Weighted average shares used in computing basic
and diluted net loss per share................... 1,251 3,108
Pro forma basic and diluted net loss per share
(unaudited)...................................... $ (.04) $ (.51)
Weighted average shares used in computing pro
forma basic and diluted
net loss per share (unaudited)................... 18,756 38,145

<CAPTION>
As of As of
July 31, 1998 July 31, 1999
------------- -------------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and marketable securities.. $4,279 $ 28,989
Working capital................................... 4,341 40,450
Long term debt, less current portion.............. -- 4,054
Redeemable convertible preferred stock............ 5,621 55,771
Total stockholders' deficit....................... (678) (13,623)
</TABLE>
- --------
See note 2 to the notes to the financial statements for a description of
the computation of basic and diluted net loss per share and the number of
shares used to compute basic and diluted net loss per share.
Pro forma per share calculations reflect the conversion upon the closing of
the offering of all outstanding shares of redeemable convertible preferred
stock into shares of common stock.

21
<PAGE>

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

Overview

We develop and market networking products that allow service providers to
address customer requirements for high-speed data services and bandwidth. From
our inception on February 17, 1998 through July 31, 1999, our operating
activities consisted primarily of research and development, product design,
development and testing. We also staffed and trained our administrative,
marketing and sales organizations and began sales and marketing activities. In
May 1999, we began shipping our SN 6000 product and recognized revenues of
$11.3 million from shipments of our SN 6000 product in the fourth quarter of
1999. We expect that a significant portion of our future revenue will continue
to come from sales of the SN 6000. While we are developing and plan to
introduce new products and enhancements, we cannot assure you that we will be
successful in these efforts.

Since our inception, we have incurred significant losses, and as of July
31, 1999, we had an accumulated deficit of $20.2 million. We have not achieved
profitability on a quarterly or an annual basis, and anticipate that we will
continue to incur net losses. We have a lengthy sales cycle for our products
and accordingly we expect to incur sales and other expenses before we realize
the related revenue. We expect to incur significant sales and marketing,
research and development and general and administrative expenses and, as a
result, we will need to generate significant revenues to achieve and maintain
profitability. Our policy is to recognize revenue from product sales upon
shipment provided that a purchase order has been received or a contract has
been executed, there are no uncertainties regarding customer acceptance, the
fee is fixed and determinable and collectibility is deemed probable. If
uncertainties regarding customer acceptance exist, revenue is recognized when
uncertainties are resolved. Revenue from technical support and maintenance
contracts is deferred and recognized ratably over the period of the related
agreements. The Company records a warranty liability for parts and labor on
its products. Warranty periods are generally three years from installation
date. Estimated warranty costs are recorded at the time of revenue
recognition.

Our manufacturing expenses consist of amounts paid to third party
manufacturers, manufacturing start-up expenses, manufacturing personnel and
related costs and our customer support group. We outsource our manufacturing
and assembly requirements. Accordingly, a significant portion of our
manufacturing expenses consists of payments to a third-party contract
manufacturer. Manufacturing, engineering and documentation controls are
performed at our facility in Chelmsford, Massachusetts. We believe that our
gross margins will be affected primarily by the following factors:

. demand for our products;

. new product introductions both by us and by our competitors;

. changes in our pricing policies and those of our competitors;

. the mix of product configurations sold; and

. the volume of manufacturing and the effect on manufacturing and
component costs.

Research and development expenses consist primarily of salaries and related
personnel costs, prototype costs and other costs related to the design,
development, testing and enhancement of our products. To date, we have
expensed our research and development costs as they were incurred. Several
components of our research and development effort require significant
expenditures, the timing of which can cause significant quarterly variability
in our expenses. We incur significant expenses in connection with the purchase
of testing equipment for our products. We believe that research and
development is critical to our strategic product development objectives and
intend to enhance our technology to meet the changing requirements of our
customers. As a result, we expect our research and development expenses to
increase in absolute dollars in the future.

Sales and marketing expenses consist primarily of salaries and the related
personnel costs of sales and marketing personnel, commissions, promotional,
travel and other marketing expenses and recruiting expenses.

22
<PAGE>

We expect that sales and marketing expenses will increase in absolute dollars
in the future as we increase our direct sales efforts, expand our operations
internationally, hire additional sales and marketing personnel, initiate
additional marketing programs and establish sales offices in new locations.

General and administrative expenses consist primarily of salaries and
related expenses for executive, finance, legal, facilities, human resources
and information technology personnel, recruiting expenses and professional
fees. We expect that general and administrative expenses will increase in
absolute dollars as we add personnel and incur additional costs related to the
growth of our business and our operation as a public company.

In connection with the granting of certain stock options and the issuance
of certain restricted shares during the period from inception through July 31,
1998 and the year ended July 31, 1999, we recorded deferred stock compensation
expense of approximately $184,000 and $25.2 million, respectively. Deferred
stock compensation expense consists of charges resulting from the granting of
stock options and restricted shares with exercise or sales prices deemed to be
below the fair value of our common stock on the date of grant. These amounts
are being amortized ratably over the vesting periods of the applicable options
or restricted stock, which are typically five years, with 20% vesting on the
first anniversary of the date of grant and 5% vesting quarterly thereafter.

The Company issued 3,846,196 stock options from August 1, 1999 through
October 21, 1999 of which 3,182,196 stock options were granted at exercise
prices ranging from $4.00 to $17.50, which are deemed to be below fair market
value. The Company expects to record an additional deferred compensation
expense of approximately $31.2 million related to these grants. Such grants
have been made on terms consistent with those described in footnote 6 to the
financial statements. As a result, deferred compensation expense at October
21, 1999 is approximately $52.6 million.

Results of Operations

Period from inception (February 17, 1998) through July 31, 1998 (fiscal 1998)
and the year ended July 31, 1999.

Revenues

We began shipping the SN 6000 in May 1999 and recognized $11.3 million of
revenue in the three-month period ended July 31, 1999. All revenue was derived
from the shipments of the SN 6000 product. For the year ended July 31, 1999,
one customer accounted for all of our revenue.

Costs of Revenues

Costs of revenues were $8.5 million, or 75% of revenue, for the year ended
July 31, 1999. We began shipping the SN 6000 in May 1999. Costs of revenues as
a percentage of revenue in 1999 were higher than they are anticipated to be in
the future due to the high cost of initial start-up of production, including
the increase in personnel and the low volume of sales.

Research and Development Expenses

Research and development expenses were $497,000 for fiscal 1998 and $14.0
million for fiscal 1999 and represented 63% and 61% of total operating
expenses for fiscal 1998 and 1999, respectively. The increase in expenses was
primarily due to increased costs associated with a significant increase in
personnel and personnel-related expenses, an increase in non-recurring
engineering costs and an increase in prototype expenses for the design and
development of the SN 6000, SN 8000 and SN 16000 products. Research and
development is essential to our future success and we expect that research and
development expenses will increase in absolute dollars in future periods.

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<PAGE>

Sales and Marketing Expenses

Sales and marketing expenses were $92,000 for fiscal 1998 and $4.1 million
for fiscal 1999 and represented 12% and 18% of total operating expenses in
fiscal 1998 and 1999, respectively. The increase in expenses reflects the
hiring of additional sales and marketing personnel, sales based commissions
and marketing program costs, including web development, trade shows and
product launch activities. We intend to continue to expand our domestic and
international sales force and marketing efforts and as a result expect sales
and marketing expenses will increase in absolute dollars in future periods.

General and Administrative Expenses

General and administrative expenses were $199,000 for fiscal 1998 and $1.4
million for fiscal 1999 and represented 25% and 6% of total operating expenses
in fiscal 1998 and 1999, respectively. The increase in expenses reflects the
hiring of additional general and administrative personnel and expenses
necessary to support and scale our operations.

Amortization of Stock Compensation

Amortization of stock compensation expense was $5,000 and $1.4 million for
fiscal 1998 and fiscal 1999, respectively. Amortization of stock compensation
expense in fiscal 1998 resulted from the granting of stock options and
restricted shares with the exercise or sales prices below the deemed fair
value of our common stock on the date of grant. Additionally, in 1999, we
incurred $2.1 million of compensation expense associated with the grant of
options to non-employees and members of our advisory boards.

Interest Income, Net

Interest income, net was $100,000 and $559,000 for fiscal 1998 and fiscal
1999, respectively. Interest income consists of interest earned on our cash
balances and marketable securities and interest expense associated with our
equipment note payable. The increase in interest income reflects higher
invested balances in 1999, offset by interest payments on our equipment note
payable in 1999.

Net Operating Losses and Tax Credit Carryforwards

As of July 31, 1999, we had approximately $16.6 million of state and
federal net operating loss carryforwards for tax reporting purposes available
to offset future taxable income. Such net operating loss carryforwards begin
to expire in 2004 and 2019, respectively, to the extent that they are not
utilized. We have not recognized any benefit from the future use of loss
carryforwards for these periods, or for any other periods, since inception.
Management's evaluation of all the available evidence in assessing
realizability of the tax benefits of such loss carryforwards indicates that
the underlying assumptions of future profitable operations contain risks that
do not provide sufficient assurance to recognize the tax benefits currently.
The net operating loss carryforwards could be limited in future years if there
is a significant change in our ownership.

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<PAGE>

Quarterly Results of Operations

The following table presents our operating results for the quarters ended
October 31, 1998, January 30, 1999, May 1, 1999 and July 31, 1999. In May
1999, we began shipping the SN 6000. The information for each of these
quarters is unaudited and has been prepared on the same basis as the audited
financial statements appearing elsewhere in this prospectus. In the opinion of
management, all necessary adjustments consisting only of normal recurring
adjustments, have been included to present fairly the unaudited quarterly
results when read in conjunction with our audited financial statements and the
related notes appearing elsewhere in this prospectus. These operating results
are not necessarily indicative of the results of any future period.

<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------
July
October 31, January 30, May 1, 31,
1998 1999 1999 1999
----------- ----------- ------- -------
(in thousands)
(unaudited)
<S> <C> <C> <C> <C>
Consolidated Statement of Operations
Data:
Revenues............................ $ -- $ -- $ -- $11,330
Costs of revenues................... 24 215 934 7,313
------- ------- ------- -------
Gross profit (loss)............... (24) (215) (934) 4,017
------- ------- ------- -------
Operating expenses:
Research and development............ 873 2,365 3,334 7,383
Sales and marketing................. 179 243 1,176 2,466
General and administrative.......... 93 280 379 653
Amortization of stock compensation.. 75 135 592 2,667
------- ------- ------- -------
Total operating expenses.......... 1,220 3,023 5,481 13,169
------- ------- ------- -------
Loss from operations................ (1,244) (3,238) (6,415) (9,152)
Interest income, net................ 60 133 295 71
------- ------- ------- -------
Net loss............................ $(1,184) $(3,105) $(6,120) $(9,081)
======= ======= ======= =======
</TABLE>

. fluctuation in demand for intelligent optical networking products;

. the timing and size of sales of our products;

. the length and variability of the sales cycle for our products;

. the timing of recognizing revenue and deferred revenue;

. new product introductions and enhancements by our competitors and
ourselves;

. changes in our pricing policies or the pricing policies of our
competitors;

. our ability to develop, introduce and ship new products and product
enhancements that meet customer requirements in a timely manner;

. our ability to obtain sufficient supplies of sole or limited source
components;

. increases in the prices of the components we purchase;

. our ability to attain and maintain production volumes and quality levels
for our products;

. the timing and level of prototype expenses;

. costs related to acquisitions of technology or businesses; and

25
<PAGE>
. general economic conditions as well as those specific to the
telecommunications, Internet and related industries.

We plan to increase significantly our operating expenses to fund greater
levels of research and development, expand our sales and marketing operations,
broaden our customer support capabilities and develop new distribution
channels. We also plan to expand our general and administrative capabilities
to address the increased reporting and other administrative demands which will
result from this offering and the increasing size of our business. Our
operating expenses are largely based on anticipated organizational growth and
revenue trends and a high percentage of our expenses are, and will continue to
be, fixed. As a result, a delay in generating or recognizing revenue for the
reasons set forth above, or for any other reason, could cause significant
variations in our operating results from quarter to quarter and could result
in substantial operating losses.

Liquidity and Capital Resources

Since inception, we have financed our operations primarily through private
sales of our capital stock totaling approximately $58.7 million in net
proceeds through July 31, 1999. We have also financed our operations through
borrowings on long-term debt agreements for the purchase of capital equipment.
At July 31, 1999, cash, cash equivalents and marketable securities totaled
$29.0 million.

Cash used in operating activities was $598,000 for fiscal 1998 and $27.6
million for the year ended July 31, 1999. The increase in cash used for
operating activities reflects increases in net losses, accounts receivables,
inventory purchases and irrevocable standby letters of credit, offset by non
cash charges for amortization of stock compensation and depreciation and
increased accounts payable and accrued expenses, reflecting the growth in
business activity.

Cash used in investing activities was $3.7 million for fiscal 1998 and
$10.0 million for the year ended July 31, 1999. The increase in net cash used
for investing activities reflects increased purchases of property and
equipment, primarily for computers and test equipment for our development and
manufacturing activities. The increases in cash used for investing activities
also reflect increased purchases of marketable securities.

Cash provided by financing activities was $5.5 million for fiscal 1998 and
$58.4 million for the year ended July 31, 1999. The increase in cash provided
by financing activities reflects the private sales of redeemable convertible
preferred stock and the issuance of common stock from the exercise of stock
options and the sale and issuance of restricted common stock.

In December 1998, as collateral for an office facility lease, the Company
has issued an irrevocable stand-by letter of credit for $92,000 which is
collateralized by a U.S. Treasury Bill. The letter of credit is irrevocable
and expires in January 2002. In July 1999, as collateral for inventory
purchases made by a third party manufacturer on behalf of the Company, the
Company has issued a guaranteed stand-by letter of credit for $4,000,000 which
is collateralized by a U.S. Government security. The letter of credit is
irrevocable and expires in October 1999.

We believe that the net proceeds from this offering, together with our
current cash, cash equivalents and marketable securities and lines of credit
will be sufficient to meet our anticipated cash needs for working capital and
capital expenditures for at least the next 12 months.

If cash generated from operations is insufficient to satisfy our liquidity
requirements, we may seek to sell additional equity or debt securities. If
additional funds are raised through the issuance of debt securities, these

26
<PAGE>

securities could have rights, preferences and privileges senior to holders of
common stock, and the term of this debt could impose restrictions on our
operations. The sale of additional equity or convertible debt securities could
result in additional dilution to our stockholders, and we cannot be certain
that additional financing will be available in amounts or on terms acceptable
to us, if at all. If we are unable to obtain this additional financing, we may
be required to reduce the scope of our planned product development and sales
and marketing efforts, which could harm our business, financial condition and
operating results.

Year 2000 Compliance

Impact of the Year 2000 Computer Problem. The year 2000 computer problem
refers to the potential for system and processing failures of date-related
data as a result of computer-controlled systems using two digits rather than
four to define the applicable year. For example, computer programs that have
time-sensitive software may recognize a date represented as "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including among other
things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.

State of Readiness of our Products. We have designed our products,
including the SN 6000, for use in the year 2000 and beyond and believe our
products are year 2000 complaint. However, our products are generally
integrated into larger networks involving sophisticated hardware and software
products supplied by other vendors. Each of our customers' networks involves
different combinations of third party products. We cannot evaluate whether all
of their products are year 2000 compliant. We may face claims based on year
2000 problems in other companies' products or based on issues arising from the
integration of multiple products within the overall network. Although no such
claims have been made against us, we may in the future be required to defend
our products in legal proceedings which could be expensive regardless of the
merits of such claims.

State of Readiness of our Internal Systems. Our business may be affected by
year 2000 issues related to non-complaint internal systems developed by us or
by third-party vendors. Our material third-party vendors have stated that they
are, or expect to be, year 2000 complaint in a timely manner. We are not
currently aware of any year 2000 problem relating to any of our material
internal systems. We are in the process of testing all such systems for year
2000 compliance and plan to complete such testing before October 31, 1999. We
do not believe that we have any significant systems that contain embedded
chips that are not year 2000 compliant. Our internal operations and business
are also dependent upon the computer-controlled systems of third parties such
as our manufacturers, suppliers, customers and other service providers. We
believe that absent a systemic failure outside our control, such as a
prolonged loss of electrical or telephone service, year 2000 problems at third
parties such as manufacturers, suppliers, customers and service providers will
not have a material impact on our operations. If our manufacturers, suppliers,
vendors, partners, customers and service providers fail to correct their year
2000 problems, these failures could result in an interruption in, or a failure
of, our normal business activities or operations. If a year 2000 problem
occurs, it may be difficult to determine which party's products have caused
the problem. These failures could interrupt our operations and damage our
relationships with our customers. Due to the general uncertainty inherent in
the year 2000 problem resulting from the readiness of third-party
manufacturers, suppliers and vendors, we are unable to determine at this time
whether year 2000 failures could harm our business and our financial results.
Our customers' purchasing plans could be affected by year 2000 issues if they
need to expend significant resources to fix their existing systems to become
year 2000 compliant. This situation may reduce funds available to purchase our
products. In addition, some customers may wait to purchase our products until
after the year 2000, which may negatively impact our revenue.

Risks. The failure of our internal systems to be year 2000 compliant could
temporarily prevent us from processing orders, issuing invoices and developing
products and could require us to devote significant resources to correct such
problems. Due to the general uncertainty inherent in the year 2000 computer
problem, resulting from the uncertainty of the year 2000 readiness of third-
party suppliers and vendors, we are unable to determine at this time whether
the consequences of year 2000 failures will have a material impact on our
business, results of operations or financial condition.

27
<PAGE>

To date, we have not incurred material expense associated with our efforts
to become year 2000 compliant and do not anticipate that any future costs
associated with our year 2000 remediation efforts will be material.

Market Risk

Sycamore does not use derivative financial instruments. We generally place
our marketable security investments in high credit quality instruments,
primarily U.S. Government obligations and corporate obligations with
contractual maturities of less than one year. We do not expect any material
loss from our marketable security investments and therefore believe that our
potential interest rate exposure is not material.

Recent Accounting Pronouncements

In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"). SOP 98-5, which is effective for fiscal years beginning after
December 15, 1998, provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start up activities and
organization costs to be expensed as incurred. Adoption of this standard did
not have a material impact on our financial condition or result of operations.

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities," which establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, (collectively referred to
as derivatives) and for hedging activities. We will adopt SFAS No. 133 as
required by SFAS No. 137, "Deferral of the effective date of the FASB
Statement No. 133," in fiscal year 2001. The adoption of SFAS No. 133 is not
expected to have an impact on our financial condition or results of
operations.

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<PAGE>

BUSINESS

Overview

We develop and market software-based intelligent optical networking
products that enable network service providers to quickly and cost-effectively
provide bandwidth and create new high speed data services. We believe that the
existing public network is unable to meet the demands of high speed data
applications that are driving network growth. As data traffic on the public
network continues to grow at rates that surpass available network capacity, we
believe that service providers require new solutions to relieve network
congestion and create new data services. Our intelligent optical networking
products are designed to allow service providers to deploy, manage and
optimize the performance of their fiber optic networks. Our products are based
on a common software architecture that we believe will accelerate our release
of new products and enable our customers to upgrade with minimal network
impact and operator training. We have designed our products to protect service
providers' existing investment in fiber optic and transmission equipment and
provide a migration path to the next generation optical public network
infrastructure.

Industry Background

Increase in Data Traffic on the Public Network

Over the past decade, the volume of high speed data traffic across the
public network has grown significantly, reflecting the increasing use of the
network for Internet access, electronic mail communications, electronic
commerce, remote access by telecommuters and other network data transmission
services. According to Ryan, Hankin & Kent, a leading market research and
consulting firm, public network bandwidth will have to increase by over 2000%
between 1998 and 2002 to satisfy expected Internet and other data traffic
requirements.

To meet the growth in the demand for high speed data services, service
providers are investing significantly to upgrade the public network
infrastructure, which was originally built for voice traffic. Service
providers are laying fiber optic cable and installing transmission equipment
which transforms the fiber from available capacity to usable bandwidth by
lighting the fiber. According to Ryan, Hankin & Kent, more than $6.9 billion
was invested in the United States alone in 1998 in building and enhancing the
transmission capability of the public network. This investment was spread
across fiber deployment, SONET equipment and dense wave division multiplexing
equipment, known as DWDM.

Existing Public Network Transmission Infrastructure

Despite these investments, service providers are still unable to quickly
respond to the bandwidth demands of their customers. We believe that this
inability is due in large part to the transmission architecture of the
existing public network. This architecture is based upon telecommunications
standards, referred to as SONET in North America and SDH elsewhere in the
world, which set the hierarchical characteristics for transmitting optical
signals. A SONET/SDH network typically consists of three primary components:

. fiber optic cable that serves as the physical transmission medium and
provides the available capacity;

. DWDM equipment, which multiplies the transmission capacity of a specific
fiber by dividing a single strand into multiple lightpaths, or
wavelengths; and

. SONET/SDH transmission equipment, which converts data traffic from an
electrical signal to an optical signal for transport over the fiber
network.

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<PAGE>

In the current public network transmission infrastructure, the ability to
manage data resides in the SONET/SDH equipment which converts the data traffic
from an electrical signal to an optical signal which is transmitted over the
fiber. The optical fiber itself is only a physical transmission medium with no
imbedded intelligence. As a result, moving data through the network involves
the following complex processes that add cost and make scaling difficult:

. Traffic enters the network as an electrical signal and is converted by
the SONET/SDH equipment into an optical signal for transmission across
the network;

. At each network transit point, the optical data traveling across the
network is terminated at a SONET/SDH network terminal;

. The optical data is then converted into an electrical signal and examined
to see which portions of the data are to be extracted from the network at
that transit point; and

. The data is then converted back to an optical signal by the SONET/SDH
equipment for transport to the next network transit point, where the
process is repeated.

The technology of a SONET/SDH architecture typically requires a linear or
ring-based network topology. The following diagram illustrates the process of
transmitting data across a typical SONET/SDH architecture:

[Illustration showing a linear SONET/SDH network. The drawing of the network
contains a fiber optic cable with SONET/SDH transmission equipment and DWDM
equipment attached. The network shows the conversion of traffic from the
optical domain to the electrical domain and back to the optical domain as data
travels across the network.]

Limitations of the Existing Public Network Transmission Infrastructure

The SONET/SDH network architecture was originally designed to transport
voice traffic rather than for today's high speed data services. Unlike voice
traffic, which is generally characterized by slow growth and stable demand,
data traffic is characterized by rapid growth and unpredictable demand. Data
networks must be capable of being deployed cost-effectively and expanded
quickly.

The SONET/SDH network architecture, however, is not sufficiently flexible to
meet these requirements. Generally, the process of expanding the capacity of a
SONET/SDH network is time-consuming and requires significant capital investment
by the service provider. There are currently only two methods to expand a
SONET/SDH network. The first option is to increase the speed at which the
network operates. Because SONET/SDH equipment is designed to operate at a
specific speed and all devices on a ring must operate at the same speed, this
option requires that all equipment on the SONET/SDH ring be replaced with
higher speed devices on a concurrent basis. In addition, because the rings at
the core of the network must carry the aggregate traffic of all of the rings
feeding them, the upgrading of one SONET/SDH ring frequently requires the
upgrading of some or all of the interconnected SONET/SDH rings. Accordingly,
adding capacity to a SONET/SDH ring network is a complex and time consuming
process. The second option to expand a SONET/SDH ring network is to construct
new rings with new fiber or increase the capacity of each individual fiber on a
ring through the utilization of DWDM technology, which can transform each fiber
strand into as many as 100 parallel optical wavelengths. Under either approach,
network complexity increases since each optical wavelength must be terminated
by SONET/SDH equipment and the interconnection of multiple SONET/SDH rings will
absorb some available network capacity.

30
<PAGE>

Data traffic will typically transit through multiple SONET/SDH rings when
traversing the public network. In addition, in SONET/SDH networks, up to 50%
of network capacity must be reserved to provide alternative routing for
traffic in the event of a network outage. This redundancy, and the numerous
optical-to-electrical-to-optical conversions within each ring and between
rings, create a costly and complex network architecture.

As a result of these limitations, the buildout of a SONET/SDH network
generally requires lengthy time commitments and significant initial equipment
investment by service providers. In today's competitive environment, long lead
times for service provisioning and significant purchase commitments are often
not compatible with the need of service providers to rapidly and cost-
effectively deploy new services and be responsive to their customer demand. To
manage the frequently unpredictable demand of data traffic, service providers
need to move toward a "just-in-time" investment and service delivery model
allowing them to introduce and expand services when and where needed in
response to demand. The migration to a "just-in-time" model will require a
public network architecture that is scalable, flexible and cost-effective and
that is capable of supporting the anticipated growth in high speed data
communications services.

The Sycamore Solution

We develop and market software-based intelligent optical networking
products that enable service providers to quickly and cost-effectively provide
bandwidth and create new high speed data services. Our products are designed
to move data directly onto the fiber without a requirement for intermediary
SONET/SDH equipment. Once on the optical network, data moves through the
network without the need to convert the optical signals to electrical signals
at each network transit point. We believe that adding intelligence to the
optical network enhances the functionality of the network and preserves the
management and restoration benefits of SONET/SDH, while providing the capacity
benefits of DWDM. Our products will provide the tools to enable service
providers to utilize, restore, provision and maintain intelligent optical
networks and optimize the performance of these networks, while providing a
migration path to the next generation optical network.

Key benefits of our solution include the following:

Improves Network Flexibility and Scalability. Our software-based products
are designed to allow service providers to improve the flexibility and
scalability of their networks without the long lead times and large, upfront
capital investment presently required for a network buildout. The software-
based capabilities of our products will permit service providers to change and
upgrade their network infrastructure and services without significant hardware
changes or additions. This improved flexibility and scalability will enable
service providers to more easily expand their network architecture, support
new high speed data applications and introduce value-added services for the
benefit of their customers.

Enables Rapid Service Delivery. The competitive marketplace facing service
providers and the pace of technological change require that the public network
infrastructure be adaptable to accommodate rapid changes in the demand for
service. Our products are designed to shorten the time it takes for service
providers to increase bandwidth and provide services, thereby enabling our
customers to introduce network services on a rapid basis in response to their
customers' demand. We believe that this flexibility will be cost-effective for
service providers because it will enable them to increase capacity based on
current, rather than forecasted, market demand for their services.

Facilitates Introduction of New Data Services and Creation of New Revenue
Opportunities for Service Providers. Because our products are software-based,
we are able to rapidly introduce new features into our products, which can in
turn be offered by service providers to their customers as new services or
service enhancements. We believe that these added features will provide
revenue opportunities for our customers and will enable them to differentiate
their network services from those of their competitors. We have designed a
comprehensive network management solution, which will enable service providers
to monitor the performance of their network, isolate and manage network
faults, and otherwise manage their network on a real-time basis.

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<PAGE>

With our network management system, service providers will be able to offer
value-added services such as customer network management (CNM) to their
customers.

Protects Existing Investments. Our products are designed to enable our
customers to increase the functionality and improve the performance of their
networks without sacrificing their infrastructure investments in SONET/SDH
equipment. Our products are designed to facilitate a gradual migration from
existing electro-optical SONET/SDH networks to all-optical networks. Service
providers will be able to introduce our products into an existing optical
network environment, when and where needed, without replacing the current
architecture. For example, over a common fiber infrastructure, a service
provider's existing SONET/SDH network could be used to continue to support low
speed voice and data services, while new higher speed data services could be
supported by our intelligent optical network products. Furthermore, the common
software architecture, which will serve as the basis for our future products,
is intended to ensure the continued interoperability and manageability of our
products as our product line evolves.

Strategy

Our objective is to be the leading provider of intelligent optical
networking products. Key elements of our strategy include the following:

Offer End-to-End Optical Network Solutions To Customers. We intend to
develop and offer a full range of intelligent optical networking products to
our customers. Our current products help service providers improve the
utilization of fiber optic capacity that has already been deployed in the
network. We expect that our future products, which will be based on the same
software architecture, will include an optical switch, which is necessary for
the creation of meshed network environments. A meshed-based network provides
greater flexibility than a ring-based network and provides for more direct
routes between network points, enabling more efficient network restoral or
redundancy schemes. In addition, we intend to differentiate ourselves from our
competition by offering other products that will enable customers to utilize,
restore and provide data services over wavelengths and monitor and improve the
performance level of network traffic.

Collaborate With Customers To Generate Demand For High Speed Data
Services. We work collaboratively with our customers to help them identify and
create new high speed data services. Our professional services team provides
assistance in such areas as network planning, design, implementation and
service launch to facilitate the introduction of these services. By helping
our customers to create new services, we help generate additional revenue
opportunities for our customers and drive additional demand for our products.

Utilize Software-Based Product Architecture. Our products utilize a common
software-based architecture that permits improved flexibility and
interoperability and expanded network management capabilities. The common
architecture is designed to reduce the complexity of introducing new software
revisions across the network. We believe that this architecture will
accelerate the release of new products and enable our customers to upgrade
with minimal network impact and operator training.

Incorporate Commercially Available Optical Hardware Components. We use
commercially available optical hardware components in our products wherever
feasible. We believe that by using these third-party components, we benefit
from the research and development of the vendors of these products, as well as
from the efficiencies of scale that these vendors generate by producing the
components in higher volumes. As a result of our use of these components, we
believe that we can more quickly bring to market a broad-based product line at
a lower cost than if we had utilized proprietary components.

Outsource Manufacturing. We outsource the manufacturing of our products to
reduce our cost structure and to maintain our focus on the development of
value-added software. We believe that most optical networking companies have
manufactured their own products in order to implement specialized
manufacturing techniques historically required for optical componentry.
However, we believe that the quality and consistency of optical

32
<PAGE>

manufacturing techniques have advanced significantly and that, as a result, it
is now possible to engage third party manufacturers to build our products
without sacrificing quality or performance.

Focus On Just-In-Time Implementation. Our product architecture strategy is
to develop products that will enable service providers to expand and upgrade
their networks in response to demand on a "just-in-time" basis. Our software-
based product architecture is designed to help us achieve this goal. Our
software capabilities support a modular "plug and play" hardware architecture
which is designed to allow new and enhanced modules to be easily and
nondisruptively inserted into the network as optical component technology
advances.

Capitalize On Extensive Industry Experience. We have significant
management, engineering and sales experience in the networking and optics
industries and long-standing relationships with key personnel in our target
customer base. We believe that our experience and relationships will be
important in enabling us to develop products to meet our customers' needs and
to penetrate our target market.

Products and Technology

Product Architecture

Our software-based intelligent optical networking products will enable
service providers to use their existing optical network infrastructure to
deliver high speed end-to-end services to meet the bandwidth intensive needs
of data applications. Our products will enable service providers to offer high
speed services over wavelengths directly from the optical network.

Our product architecture is designed to provide the following benefits:

. lowered network infrastructure cost by reducing the number of optical-to-
electrical-to-optical conversions required to transmit data traffic
across the network;

. network simplification by eliminating the need for a separate layer of
SONET/SDH equipment for new services;

. more rapid service delivery by enabling automated end-to-end provisioning
of services;

. non-disruptive network upgrades through advanced software capabilities;

. a practical migration path from a SONET/SDH architecture to an all-
optical network; and

. provide service providers with new revenue opportunities through advanced
features that support value-added service offerings.

We believe that the acceptance and implementation of intelligent optical
networking technology by service providers will be a gradual process driven by
high speed data service demands and network scaling requirements. Our product
strategy will allow service providers to migrate from today's SONET/SDH
network architecture to an intelligent optical network while preserving their
investment in the existing network. As intelligent optical networking
equipment is introduced into an existing SONET/SDH network, the service
provider can increasingly deliver high speed services directly from the
optical network. As the intelligent optical network continues to grow,
switching can be introduced into the optical network to support increased
scaling and efficient traffic routing and to complete the transition to a
meshed-based network architecture. Throughout all of these stages of network
development, we expect to offer the software-based management tools which will
allow the service provider to effectively provision and manage services end-
to-end.

Sycamore's intelligent optical networking products incorporate the
following features:

Intelligent Optical Networking Software. Our entire product line shares a
common software base. This software foundation allows us to minimize product
development time by leveraging our software architecture across multiple
product lines. Our software architecture is designed to provide service
providers with tools to

33
<PAGE>

continue to evolve their network without requiring the replacement of existing
infrastructure. In addition, the architecture is designed to enable service
providers to rapidly absorb new optical technology and functionality into the
network with minimal effort, training and incremental investment. Software-
based features such as topology discovery, system self-inventory and dynamic
power balancing will allow service providers to quickly respond to customer
needs. Additionally, advances in optical components, such as new lasers,
filters, and amplifiers, can be quickly integrated within this software-based
environment.

SONET/SDH Functionality. Our products are designed to provide the optical
interfaces and management and restoration capabilities traditionally offered
on SONET/SDH equipment. By supporting these capabilities within the optical
domain, rather than the electrical domain, service providers can directly
offer services without the need for separate SONET/SDH products.

DWDM Technology. DWDM technology creates capacity by multiplying the number
of wavelengths that a single fiber can support. We integrate commercially
available DWDM optical technology into our products, providing a comprehensive
solution for our customers' multiplexing needs.

Network Management. Our network management products will provide end-to-end
management and control of the intelligent optical network. Network management
functions include fault management, configuration management, accounting
management, performance management and security management. Comprised of
SilvxManager, a network management platform, and SilvxSource, a system-
resident management application, our network management products constitute a
distributed solution designed to provide end-to-end management of the
intelligent optical network. Our network management products are designed to
manage Sycamore's intelligent optical networking products, provide for the
management of third party products and integrate with other operating support
systems when introduced into an existing network environment.

Sycamore's Intelligent Optical Networking Products

The following chart describes our current and planned products:

<TABLE>
<CAPTION>
Product Application Service* Status
- -------------------------------------------------------------------------------------
<C> <S> <C> <C>
SN 6000 Intelligent OC-48/STM-16 Wave Service (Long Commercially
Optical Distance) available
Transport
Product
- -------------------------------------------------------------------------------------
SN 8000 Intelligent OC-48/STM-16 Wave Service (Medium Commercially
Optical Distance) available
------------------------------------------------------
Add/Drop Product OC-48/STM-16 Wave Service (Long In test stage
Distance)
------------------------------------------------------
OC-12/STM-4 Wave Service In development
------------------------------------------------------
OC-3/STM-1 Wave Service In development
------------------------------------------------------
OC-192/STM-64 Wave Service In development
- -------------------------------------------------------------------------------------
SilvxSource SN 6000/8000 Provides local management of wave Commercially
Management services available
Software
- -------------------------------------------------------------------------------------
SilvxManager Network Provides end-to-end management of Field test at
Management wave services customer's site
System
(Software)
- -------------------------------------------------------------------------------------
SN 16000 Intelligent Will provide wave-based switching In development
Optical Switch and routing in meshed network
environment
</TABLE>
- --------
* References to OC services are to data transport services at a speed
indicated by the number following the OC designation. For example, OC-48
service designates a transmission speed of 2.5 gigabytes per second. Higher
numbers denote faster transmission speeds.

SN 6000. The SN 6000 is an intelligent optical transport product designed
specifically to work within an existing SONET/SDH network. The SN 6000 enables
high speed services over fiber optic wavelengths and can be overlaid on top of
the existing network. The SN 6000 will allow a service provider to begin the
migration from a SONET/SDH network to an intelligent optical network.

34
<PAGE>

SN 8000. The SN 8000 is an intelligent optical add/drop product that will
be used to provide high speed services over fiber optic wavelengths for
access, interoffice, regional, and backbone networks. The SN 8000 will provide
a complete stand-alone optical networking solution and can be configured in
point-to-point linear or ring applications. The SN 8000 can be overlaid on top
of existing SONET/SDH networks, allowing service providers to implement
optical networking technology when and where needed, without replacing an
installed infrastructure.

SilvxSource and SilvxManager. The SILVX optical network management system
provides end-to-end management of data communications services across a
service provider's optical network. SILVX simplifies network configuration,
network provisioning and network management by implementing many of today's
manual and labor-intensive network management processes within software.
Additionally, SILVX allows service providers to offer network management-based
services to their customers. SilvxSource software runs on the intelligent
optical network elements (SN 6000, SN 8000 and in the future, SN 16000) and
the SilvxManager software runs on a centralized management station.

SN 16000. We are developing the SN 16000 optical switch for end-to-end
wavelength switching and routing, which is necessary for the creation of a
meshed topology network. The SN 16000 will support incremental network growth
through a modular architecture and is being designed to coexist with the SN
6000 and the SN 8000, as well as other third-party optical networking
products.

Customers

Our target customer base includes new and established local voice and data
service providers, long distance carriers, Internet service providers, cable
operators, PTTs (foreign telephone companies) and carriers who provide service
to other customers. At July 31, 1999, we had shipped product to one customer,
Williams Communications, Inc. Williams Communications is a leading US-based
carrier, providing communications services to other carriers. Williams is
currently using our SN 6000 intelligent optical networking product in its
internal data network to provision OC-48 waves between its ATM switches.

Sales and Marketing

We sell our products through a direct sales force. In addition, we intend
to establish relationships with selected OEMs and other marketing partners,
both domestically and internationally, in order to serve particular markets
and provide our customers with opportunities to purchase our products in
combination with related services and products. As of July 31, 1999, our sales
and marketing organization consisted of 30 employees, of which:

. 16 are located in our headquarters in Chelmsford, Massachusetts, and

. 14 are located in a total of 7 sales and support offices around the
United States.

Our marketing objectives include building market awareness and acceptance
of Sycamore and our products as well as generating qualified customer leads.
We send out direct mail and attend trade shows, and provide information about
our company and our products on our Web site. We also conduct public relations
activities, including interviews and demonstrations for industry analysts. In
addition, our senior executives have significant industry contacts as a result
of their prior experience.

Our professional services team works collaboratively with our customers and
prospective customers to help them identify and create new high speed data
services that they can offer to their customers. We believe that this
assistance is an integral aspect of our sales and marketing efforts which will
help drive additional demand for our products.

35
<PAGE>

Research and Development

We have assembled a team of highly skilled engineers with significant
telecommunications industry experience. Our engineers have expertise in
optics, hardware and software. As of July 31, 1999, we had 87 employees
responsible for product development, quality assurance and documentation. Our
development group's priority includes the release of new products which will
facilitate the deployment of optical networks. We are focused on enhancing the
scalability, performance and reliability of our intelligent optical network
products.

We have made, and will continue to make, a substantial investment in
research and development. Research and development expenses were $497,000 for
the period from inception through July 31, 1998 and $14.0 million for the year
ended July 31, 1999. All of our software development costs have been expensed
as incurred.

While we have developed, and expect to continue to develop, most new
products and enhancements to existing products internally, we have licensed
certain commercially available software technology from third parties.

Competition

The market for intelligent optical networking products is intensely
competitive, subject to rapid technological change and significantly affected
by new product introductions and other market activities of industry
participants. We expect competition to persist and intensify in the future.
Our primary sources of competition include vendors of network infrastructure
equipment and optical network equipment, such as Ciena Corporation, Cisco
Systems, Lucent Technologies and Nortel Networks, and private companies that
have focused on our target market. Many of our competitors have significantly
greater financial resources than us and are able to devote greater resources
to the development, promotion, sale and support of their products. In
addition, many of our competitors have more extensive customer bases and
broader customer relationships than us, including relationships with our
potential customers.

In order to compete effectively, we must deliver products that:

. provide extremely high network reliability;

. scale easily and efficiently with minimum disruption to the network;

. interoperate with existing network designs and equipment vendors;

. reduce the complexity of the network by decreasing the need for
overlapping equipment;

. provide effective network management; and

. provide a cost-effective solution for service providers.

Proprietary Rights and Licensing

Our success and ability to compete are dependent on our ability to develop
and maintain the proprietary aspects of our technology and operate without
infringing on the proprietary rights of others. We rely on a combination of
patent, trademark, trade secret and copyright law and contractual restrictions
to protect the proprietary aspects of our technology. These legal protections
afford only limited protection for our technology. We presently have three
patent applications pending in the United States and we cannot be certain that
patents

36
<PAGE>

will be granted based on these or any other applications. We seek to protect
our source code for our software, documentation and other written materials
under trade secret and copyright laws. We license our software pursuant to
signed license agreements, which impose certain restrictions on the licensee's
ability to utilize the software. Finally, we seek to limit disclosure of our
intellectual property by requiring employees and consultants with access to
our proprietary information to execute confidentiality agreements with us and
by restricting access to our source code. Due to rapid technological change,
we believe that factors such as the technological and creative skills of our
personnel, new product developments and enhancements to existing products are
more important than the various legal protections of our technology to
establishing and maintaining a technology leadership position.

Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult and while we are unable to determine the extent to which piracy of
our software exists, software piracy can be expected to be a persistent
problem. Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets, to determine the validity and
scope of the proprietary rights of others or to defend against claims of
infringement or invalidity. However, the laws of many countries do not protect
our proprietary rights to as great an extent as do the laws of the United
States. Any such resulting litigation could result in substantial costs and
diversion of resources and could have a material adverse effect on our
business, operating results and financial condition. There can be no assurance
that our means of protecting our proprietary rights will be adequate or that
our competitors will not independently develop similar technology. Any failure
by us to meaningfully protect our property could have a material adverse
effect on our business, operating results and financial condition.

There can be no assurance that third parties will not claim infringement
with respect to our current or future products. Any such claims, with or
without merit, could be time-consuming to defend, result in costly litigation,
divert management's attention and resources, cause product shipment delays or
require us to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
us or at all. A successful claim of product infringement against us and our
failure or inability to license the infringed technology or develop or license
technology with comparable functionality could have a material adverse effect
on our business, financial condition and operating results.

We integrate third-party software into our products. This third-party
software may not continue to be available on commercially reasonable terms. If
we cannot maintain licenses to this third-party software, distribution of our
products could be delayed until equivalent software could be developed or
licensed and integrated into our products, which could materially adversely
affect our business, operating results and financial condition.

Manufacturing

The manufacturing of our products is entirely outsourced. Celestica, Inc.
provides comprehensive manufacturing services, including assembly, test,
control and shipment to our customers, and procures materials on our behalf.
We design, specify and monitor all of the tests that are required to meet our
internal and external quality standards, which are conducted by Celestica with
test equipment owned by us. We believe that the outsourcing of our
manufacturing will enable us to conserve the working capital that would be
required to purchase inventory, will allow us to better adjust manufacturing
volumes to meet changes in demand, and will better enable us to more quickly
deliver products. At present, we purchase products from Celestica and our
other manufacturers on a purchase order basis. We are in the process of
negotiating a long-term contract with Celestica. We cannot assure you that we
will be able to enter into a long-term contract on terms acceptable to us, if
at all.

Employees

As of July 31, 1999, we had a total of 148 employees of which:

. 87 were in research and development,

37
<PAGE>

. 30 were in sales and marketing,

. 7 were in customer service and support,

. 9 were in manufacturing, and

. 15 were in finance and administration.

Our future success will depend in part on our ability to attract, retain
and motivate highly qualified technical and management personnel, for whom
competition is intense. Our employees are not represented by any collective
bargaining unit. We believe our relations with our employees are good.

Properties

Our headquarters are currently located in a leased facility in Chelmsford,
Massachusetts, consisting of approximately 35,000 square feet under a lease
that expires in 2002. We also lease a facility in Chelmsford, Massachusetts,
consisting of approximately 80,000 square feet used primarily for research and
development under a lease that expires in 2004.

Legal Proceedings

We are not currently a party to any material litigation.

One of our non-officer sales employees has been sued by a former employer
which has alleged, among other things, that the employee improperly disclosed
confidential information of the former employer regarding its business
dealings with our customer. We have chosen to assume the cost of defending
this lawsuit.

38
<PAGE>

MANAGEMENT

Executive Officers, Directors and Key Employees

The executive officers, directors and key employees of Sycamore, and their
respective ages and positions as of July 31, 1999, are as follows:

<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Executive Officers and
Directors:
Gururaj Deshpande....... 48 Chairman of the Board of Directors
Daniel E. Smith......... 49 President, Chief Executive Officer and
Director
Frances M. Jewels....... 34 Chief Financial Officer, Vice President,
Finance and Administration, Treasurer and
Secretary
Chikong Shue............ 48 Vice President, Engineering
Ryker Young............. 35 Vice President, Sales
John E. Dowling......... 46 Vice President, Operations
Kurt Trampedach......... 55 Vice President, International Sales
Jeffry A. Kiel.......... 35 Vice President, Product Marketing
Anita Brearton.......... 40 Vice President, Corporate Marketing
Timothy Barrows (1)(2).. 42 Director
Paul J. Ferri (1)(2).... 60 Director
John W. Gerdelman(3).... 46 Director
Other Key Employees:
Richard A. Barry........ 33 Chief Technical Officer
Eric A. Swanson......... 39 Chief Scientist
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Mr. Gerdelman was elected to our board of directors in September 1999

Set forth below is information regarding the professional experience for
each of the above-named persons.

Gururaj Deshpande has served as Chairman of our board of directors since
our inception in February 1998. He served as our Treasurer and Secretary from
February 1998 to June 1999 and as our President from February 1998 to October
1998. Before founding Sycamore, Mr. Deshpande founded Cascade Communications
Corp., a provider of wide area network switches. From October 1990 to April
1992, Mr. Deshpande served as President of Cascade and from April 1992 to June
1997, he served as Cascade's Executive Vice President of Marketing and
Customer Service. Mr. Deshpande was a member of the board of directors of
Cascade since its inception and was chairman of the board of directors of
Cascade from 1996 to 1997.

Daniel E. Smith has served as our President, Chief Executive Officer and as
a member of our board of directors since October 1998. From June 1997 to July
1998, Mr. Smith was Executive Vice President and General Manager of the Core
Switching Division of Ascend Communications, Inc., a provider of wide area
network switches and access data networking equipment. Mr. Smith was also a
member of the board of directors of Ascend Communications, Inc. during that
time. From April 1992 to June 1997, Mr. Smith served as President and Chief
Executive Officer and a member of the board of directors of Cascade
Communications Corp.

Frances M. Jewels has served as our Vice President of Finance and
Administration, Treasurer and Secretary since June 1999 and Chief Financial
Officer since July 1999. From June 1997 to June 1999, Ms. Jewels served as
Vice President and General Counsel of Ascend Communications, Inc. From April
1994 to June 1997, Ms. Jewels served as Corporate Counsel of Cascade
Communications Corp. Prior to April 1994, Ms. Jewels practiced law in private
practice and, prior to that, practiced as a certified public accountant.

39
<PAGE>

Chikong Shue has served as our Vice President of Engineering since August
1998. From June 1997 to July 1998, Mr. Shue was Vice President of Software and
Systems Engineering of the Core Switching Division of Ascend Communications,
Inc. Mr. Shue was a co-founder of Cascade Communications Corp. and served as
director of software engineering at Cascade from May 1991 to August 1994 and
as a corporate fellow and Vice President of Cascade's Remote Access
Engineering division from September 1994 until March 1997.

Ryker Young has served as our Vice President of Sales since August 1998.
From July 1997 to August 1998, Mr. Young was Central Region Director of Sales
for Ascend Communications, Inc. From January 1996 to June 1997, Mr. Young was
the South Central Regional District Manager for Cascade Communications Corp.
From October 1994 to December 1995, Mr. Young was Major Account Manager for
Cisco Systems, Inc.

John E. Dowling has served as our Vice President of Operations since August
1998. From July 1997 to August 1998, Mr. Dowling served as Vice President of
Operations of Aptis Communications, a manufacturer of carrier-class access
switches for network service providers. Mr. Dowling served as Vice President
of Operations of Cascade Communications Corp. from May 1994 to June 1997.

Kurt Trampedach has served as our Vice President of International Sales
since July 1999. From June 1999 to July 1999, Mr. Trampedach was Vice
President, Carrier Market Development for Lucent Technologies, Inc. From June
1997 to June 1999 he was Vice President, Carrier Market Development for Ascend
Communications, Inc. From September 1996 to June 1997, Mr. Trampedach was Vice
President, International Sales for Cascade Communications Corp. Mr. Trampedach
was Vice President, European Operations for Alcatel USA, Inc. from April 1994
to September 1996.

Jeffry A. Kiel has served as our Vice President, Product Marketing since
July 1999 and as Director of Marketing from September 1998 to July 1999. Mr.
Kiel served as Director of Product Marketing at Ascend Communications, Inc.
from June 1997 to September 1998. From August 1996 to June 1997, Mr. Kiel
served as Product Marketing Manager of Cascade Communications Corp. From
October 1993 to August 1996, Mr. Kiel was Senior Manager, Technical Staff at
BellSouth Telecommunications.

Anita Brearton has served as our Vice President, Corporate Marketing since
July 1999 and as Director of Marketing Programs from September 1998 to July
1999. From September 1997 to August 1998, Ms. Brearton served as Vice
President of Marketing for Artel Video Systems, Inc., a producer of fiber
optic video transmission and routing products. From June 1997 to September
1997, Ms. Brearton was director of marketing programs for the core switching
division of Ascend Communications, Inc. Ms. Brearton served as Director of
Marketing Programs for Cascade Communications Corp. from November 1995 to June
1997. From July 1980 to August 1995, Ms. Brearton held several positions at
General DataCom Industries, Inc., most recently as International Marketing
Programs Manager.

Timothy Barrows has served as a director since February 1998. Mr. Barrows
has been a general partner of Matrix Partners since September 1985. Mr.
Barrows also serves on the board of directors of SilverStream Software, Inc.

Paul J. Ferri has served as a director since February 1998. Mr. Ferri has
been a general partner of Matrix Partners, a venture capital firm, since
February 1982. Mr. Ferri also serves on the board of directors of VideoServer,
Inc. and Applix, Inc.

John W. Gerdelman has served as a director since September 1999. Mr.
Gerdelman has been President and Chief Executive Officer of USA Net Inc. since
April 1999. Mr. Gerdelman was employed by MCI Telecommunications Corporation
as President of the Network and Information Technology Division from September
1994 to April 1999 and Senior Vice President of Sales and Service Operations
from June 1992 to September 1994.

40
<PAGE>

Richard A. Barry has served as our Chief Technical Officer since July 1999
and as our Director of Architecture from our inception in February 1998 to
July 1999. Prior to co-founding Sycamore, from September 1994 to February
1998, Mr. Barry was Chief Network Architect of the Advanced Networks Group at
MIT's Lincoln Laboratory. Mr. Barry was an assistant professor in the
Electrical Engineering and Computer Science Department at George Washington
University from September 1993 to August 1994.

Eric A. Swanson, a co-founder of Sycamore, has served as Chief Scientist
since our inception in February 1998. From 1982 to February 1998, Mr. Swanson
was Associate Group Leader of the Advanced Networks Group at MIT's Lincoln
Laboratory.

Each executive officer serves at the discretion of the board of directors
and holds office until his or her successor is elected and qualified or until
his or her earlier resignation or removal. There are no family relationships
among any of the directors or executive officers of Sycamore. Each of the
directors serves on the board of directors pursuant to the terms of an
agreement that will terminate upon the closing of this offering.

Election of Directors

Following this offering, the board of directors will be divided into three
classes, each of whose members will serve for a staggered three-year term.
Messrs. Barrows and Gerdelman will serve in the class whose term expires at
the annual meeting of stockholders in 2000; Messrs. Ferri and Deshpande will
serve in the class whose term expires at the annual meeting of stockholders in
2001; and Mr. Smith will serve in the class whose term expires at the annual
meeting of stockholders in 2002. Upon the expiration of the term of a class of
directors, directors in such class will be elected for three-year terms at the
annual meeting of stockholders in the year in which such term expires.

Compensation of Directors

We reimburse directors for reasonable out-of-pocket expenses incurred in
attending meetings of the board of directors.

Compensation Committee Interlocks and Insider Participation

Prior to the appointment of the Compensation Committee, Sycamore's full
board of directors (which includes Messrs. Deshpande and Smith) was
responsible for the functions of a Compensation Committee. No interlocking
relationship exists between any member of our board of directors or our
Compensation Committee and any member of the board of directors or
compensation committee of any other company, and no such interlocking
relationship has existed in the past.

Board Committees

The board of directors has established a Compensation Committee and an
Audit Committee. The Compensation Committee, which consists of Messrs. Ferri
and Barrows, reviews executive salaries, administers bonuses, incentive
compensation and stock plans, and approves the salaries and other benefits of
our executive officers. In addition, the Compensation Committee consults with
our management regarding our benefit plans and compensation policies and
practices.

The Audit Committee, which consists of Messrs. Ferri and Barrows, reviews
the professional services provided by our independent accountants, the
independence of such accountants from our management, our annual financial
statements and our system of internal accounting controls. The Audit Committee
also reviews such other matters with respect to our accounting, auditing and
financial reporting practices and procedures as it may find appropriate or may
be brought to its attention.

41
<PAGE>

Executive Compensation

The table below sets forth, for the fiscal year ended July 31, 1999, the
cash compensation earned by:

. our Chairman of the Board,

. our Chief Executive Officer and

. the other most highly compensated executive officer who received annual
compensation in excess of $100,000, collectively referred to below as the
Named Executive Officers.

In accordance with the rules of the Securities and Exchange Commission, the
compensation set forth in the table below does not include medical, group life
or other benefits which are available to all of our salaried employees, and
perquisites and other benefits, securities or property which do not exceed the
lesser of $50,000 or 10% of the person's salary and bonus shown in the table.
In the table below, columns required by the regulations of the Securities and
Exchange Commission have been omitted where no information was required to be
disclosed under those columns.

Summary Compensation Table

<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
--------------------------------- ----------------
Awards
----------------
Other Annual Securities All Other
Salary Bonus Compensation Underlying Compensation
($) ($) ($) Options/SARS (#) ($)
------- ------ ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
Gururaj Deshpande
Chairman and Founder... 100,000 -- -- -- --
Daniel E. Smith
President and Chief
Executive Officer ..... 73,077(1) -- -- -- --
Ryker Young
Vice President, Sales.. 117,788 49,998(2) -- 60,000 9,326(3)
</TABLE>
- --------
(1) Represents the total amount of compensation Mr. Smith received in fiscal
1999 for the portion of the year during which he was one of our executive
officers. Mr. Smith joined us in October 1998.
(2) Represents advance commission income.
(3) Represents reimbursement for relocation expenses.

Stock Options

The following table contains information concerning the grant of options to
purchase shares of our common stock to each of the Named Executive Officers
during the fiscal year ended July 31, 1999. Percentages are based on an
aggregate of 7,760,100 shares granted in fiscal 1999. All options were granted
at fair market value as determined by the board of directors on the date of
grant.

Option Grants in Last Fiscal Year

<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed
Annual Rates of
Number of Percent of Stock
Securities Total Options Appreciation for
Underlying Granted To Exercise Option Term(1)
Options Employees in Price Expiration -----------------
Granted Fiscal Year ($/Share) Date 5% 10%
---------- ------------- --------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gururaj Deshpande....... -- -- -- -- -- --
Daniel E. Smith......... -- -- -- -- -- --
Ryker Young............. 60,000(2) .78% $.33 June 16, 2009 12,578 31,875
</TABLE>

42
<PAGE>

(1) Amounts reported in these columns represent amounts that may be realized
upon exercise of options immediately prior to the expiration of their term
assuming the specified compounded rates of appreciation (5% and 10%) on
Sycamore's common stock over the term of the options. The potential
realizable values set forth above do not take into account applicable tax
and expense payments that may be associated with such option exercises.
Actual realizable value, if any, will be dependent on the future price of
the common stock on the actual date of exercise, which may be earlier than
the stated expiration date. The 5% and 10% assumed annualized rates of
stock price appreciation over the exercise period of the options used in
the table above are mandated by the rules of the Securities and Exchange
Commission and do not represent Sycamore's estimate or projection of the
future price of the common stock on any date. There is no representation
either express or implied that the stock price appreciation rates for the
common stock assumed for purposes of this table will actually be achieved.
(2) These options are exercisable immediately on the grant date, but unvested
shares are subject to a repurchase right in favor of Sycamore that
generally entitles us to repurchase these shares at their original
exercise price upon termination of Mr. Young's services with Sycamore.
Approximately one year from the hire date of Mr. Young, the repurchase
right lapses as to a portion of the shares subject to the option and
thereafter such right lapses as to an additional 5% of the shares subject
to the option for each full three months of employment completed by Mr.
Young.

Fiscal Year-End Option Values

The following table sets forth information for each of the Named Executive
Officers with respect to the value of options outstanding as of July 31, 1999.

Aggregated Year-End Option Table

<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-The-Money Options at
Acquired Value Options at July 31, 1999 July 31, 1999 ($)
on Exercise Realized ------------------------- -------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gururaj Deshpande....... -- -- -- -- -- --
Daniel E. Smith......... -- -- -- -- -- --
Ryker Young............. 60,000(1) 40,000(2) -- -- -- --
</TABLE>
- --------
(1) These shares are subject to a repurchase right in favor of Sycamore as
described above.
(2) Calculated on the basis of the fair market value of our common stock as of
the date of exercise, of $1.00 per share, as determined by the board of
directors on such date, less the aggregate exercise price.

Benefit Plans

1999 Stock Incentive Plan. Our 1999 Stock Incentive Plan was adopted by our
board of directors in August 1999 and approved by our stockholders in
September 1999. Any shares not yet issued under our predecessor 1998 Stock
Incentive Plan on the date of this offering, 18,638,700 shares as of July 31,
1999, will be available under the 1999 Plan. In addition, there will be an
annual increase beginning on August 1, 2000 of the lesser of:

. 3,000,000 shares;

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

. a lesser amount determined by the board.

The 1999 plan provides for the grant of incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code, non-qualified stock
options, restricted stock awards and other stock-based awards.

Our officers, employees, directors, consultants and advisors and those of
our subsidiaries are eligible to receive awards under the 1999 plan. Under
present law, however, incentive stock options may only be granted to
employees. No participant may receive any award for more than 500,000 shares
in any calendar year.

43
<PAGE>

Optionees receive the right to purchase a specified number of shares of
common stock at a specified option price and subject to such other terms and
conditions as are specified in connection with the option grant. We may grant
options at an exercise price less than, equal to or greater than the fair
market value of our common stock on the date of grant. Under present law,
incentive stock options and options intended to qualify as performance-based
compensation under Section 162(m) of the Internal Revenue Code may not be
granted at an exercise price less than the fair market value of the common
stock on the date of grant or less than 110% of the fair market value in the
case of incentive stock options granted to optionees holding more than 10% of
the voting power of the company. The 1999 plan permits our board of directors
to determine how optionees may pay the exercise price of their options,
including by cash, check or in connection with a "cashless exercise" through a
broker, by surrender to us of shares of common stock, by delivery to us of a
promissory note, or by any combination of the permitted forms of payment.

Our board of directors administers the 1999 plan. Our board of directors
has the authority to adopt, amend and repeal the administrative rules,
guidelines and practices relating to the plan and to interpret its provisions.
It may delegate authority under the 1999 plan to one or more committees of the
board of directors and, subject to certain limitations, to one or more of our
executive officers. Our board of directors has authorized the compensation
committee or another committee appointed by the board to administer the 1999
plan, including the granting of options to our executive officers. Subject to
any applicable limitations contained in the 1999 plan, our board of directors,
our compensation committee or any other committee or executive officer to whom
our board of directors delegates authority, as the case may be, selects the
recipients of awards and determines:

. the number of shares of common stock covered by options and the dates
upon which such options become exercisable;

. the exercise price of options;

. the duration of options; and

. the number of shares of common stock subject to any restricted stock or
other stock-based awards and the terms and conditions of such awards,
including the conditions for repurchase, issue price and repurchase
price.

In the event of a merger, consolidation, asset sale, liquidation or similar
transaction resulting in a change of control of Sycamore, each outstanding
option will immediately become fully exercisable with respect to the total
number of shares subject to the option. However, an option would not so
accelerate if the option is assumed or otherwise continued in full force by
the successor entity, if the option is replaced with a cash incentive program
of the successor corporation which presents the spread at the time of the
change of control on the shares which were not otherwise then exercisable, or
if the acceleration of the option is subject to other limitations imposed on
the date of grant. Notwithstanding the foregoing, the number of vested shares
will, immediately prior to a change of control, be increased by the number of
shares that would have become vested on the date 12 months following a change
of control (six months for persons employed less than one year prior to the
change of control). If following a change of control the successor corporation
terminates the employee without cause, all of his or her options will become
vested upon the termination of his or her employment.

No award may be granted under the 1999 plan after the tenth anniversary of
the effective date, but the vesting and effectiveness of Awards previously
granted may extend beyond that date. Our board of directors may at any time
amend, suspend or terminate the 1999 plan, except that no award granted after
an amendment of the 1999 plan and designated as subject to Section 162(m) of
the Internal Revenue Code by our board of directors shall become exercisable,
realizable or vested, to the extent such amendment was required to grant such
award, unless and until such amendment is approved by our stockholders.

1999 Employee Stock Purchase Plan. Our 1999 Employee Stock Purchase Plan
was adopted by our board of directors in August, 1999 and received stockholder
approval in September, 1999. The purchase plan authorizes the issuance of up
to a total of 750,000 shares of our common stock to participating employees.
On August 1 of each year, commencing with August 1, 2000, the aggregate number
of shares available for purchase during the

44
<PAGE>

life of the plan is automatically increased by the number of shares necessary
to cause the number of shares then available for purchase to be restored to
750,000.

All of our employees, including directors who are employees, and all
employees of any participating subsidiaries:

. whose customary employment is more than 20 hours per week for more than
five months in a calendar year,

. whose customary employment is at least five months in any calendar year,
and

. who hold less than five percent of the total combined voting power of the
Company

are eligible to participate in the purchase plan. As of July 31, 1999,
approximately 148 of our employees would have been eligible to participate in
the purchase plan.

On the first day of an offering period, we will grant to each eligible
employee who has elected to participate in the purchase plan an option to
purchase shares of common stock as follows: the employee may authorize an
amount (up to 10%, or such lesser amount as shall be determined by the Board,
of such employee's base pay) to be deducted from such employee's base pay
during the offering period. On the last day of the offering period, the
employee is deemed to have exercised the option, at the option exercise price,
to the extent of accumulated payroll deductions. Under the terms of the
purchase plan, the option exercise price is an amount equal to 85% of the
closing price per share of the common stock on either the first day or the
last day of the offering period, whichever is lower. The first offering period
under the purchase plan will commence on the effective date of the
registration by Sycamore of its shares under the Exchange Act, with the option
price on the first day of such offering period equivalent to 85% of the
initial public offering price. In no event may an employee purchase in any one
offering period a number of shares which exceeds the number of shares
determined by dividing the product of (1) $12,500 by (2) the closing market
price of a share of common stock on the first business day of the offering
period or such other number as may be determined by the Board prior to the
commencement date of the offering period. Each offering period is expected to
be of 6 months (other than the first offering period, which will end April 30,
2000); provided that the board of directors may, in its discretion, choose a
different offering period of 27 months or less.

An employee who is not a participant on the last day of the offering
period, as a result of voluntary withdrawal or termination of employment or
for any reason, is not entitled to exercise any option, and the employee's
accumulated payroll deductions will be refunded. However, upon termination of
employment because of death, the employee's beneficiary has certain rights to
elect to exercise the option to purchase the shares that the accumulated
payroll deductions in the participant's account would purchase at the date of
death.

Because participation in the purchase plan is voluntary, we cannot now
determine the number of shares of our common stock to be purchased by any of
our current executive officers, by all of our current executive officers as a
group or by our non-executive employees as a group.

1999 Non-Employee Director Option Plan. Our 1999 Non-Employee Director
Option Plan was adopted by our board of directors in August 1999 and received
stockholder approval in September 1999. The option plan authorizes the
issuance of up to a total of 500,000 shares of our common stock to
participating directors who are not also an employee or officer. On August 1
of each year, commencing with August 1, 2000, the aggregate number of shares
available for the grant of options under the plan is automatically increased
by the number of shares necessary to cause the total number of shares then
available for grant to 500,000.

Each director who is not also an employee or officer shall be automatically
granted an option to purchase 30,000 shares of common stock on the latest to
occur of:

. the date the person is first elected to the board or

. August 17, 1999.

45
<PAGE>

In addition, each of these directors will be automatically granted an
option to purchase 10,000 shares immediately following each annual meeting of
stockholders. The option exercise price per share for all options granted
under the option plan will be equal to the fair market value of our common
stock on the date of grant. Under the plan, options are fully exercisable on
the date of grant. Options granted under the plan are subject to repurchase by
the Company prior to completion of the applicable vesting period. The term of
each option is 10 years from the date of grant. Our board of directors has
discretion to establish the terms of options granted under the Plan. No
options to purchase shares have been granted to date under the option plan.

401(k) Plan. On December 9, 1998, we adopted an employee savings and
retirement plan qualified under Section 401 of the Internal Revenue Code and
covering all of our employees. Pursuant to the 401(k) plan, employees may
elect to reduce their current compensation by up to the statutorily prescribed
annual limit and have the amount of such reduction contributed to the 401(k)
plan. We may make matching or additional contributions to the 401(k) plan in
amounts to be determined annually by our board of directors. We have made no
contributions to the 401(k) plan to date.

46
<PAGE>

CERTAIN TRANSACTIONS

Preferred Stock Issuances

Since inception in February 1998, we have issued and sold shares of
redeemable convertible preferred stock to the following persons and entities
who are our executive officers, directors or principal stockholders. Upon the
closing of this offering, each share of preferred stock will convert into
three shares of common stock. For more detail on shares held by these
purchasers, see "Principal Stockholders."

<TABLE>
<CAPTION>
Series A Series B Series C
Preferred Preferred Preferred
Investor Stock Stock Stock
- -------- --------- --------- ---------
<S> <C> <C> <C>
Gururaj Deshpande................................. 2,750,000 1,059,976 385,647
Daniel E. Smith................................... 2,475,000 953,979 347,082
Chikong Shue...................................... 300,000 115,634 42,071
John E. Dowling................................... -- 71,429 --
Matrix V Management Co., L.L.C.(1)................ 2,750,000 1,059,976 385,647
</TABLE>
- --------
(1) Composed of Matrix Partners V, L.P. and Matrix V Entrepreneurs Fund, L.P.
Matrix V Management Co., L.L.C. is the general partner of each of Matrix
Partners V, L.P. and Matrix V Entrepreneurs Fund, L.P. Timothy Barrows and
Paul J. Ferri, directors of Sycamore, are general partners of Matrix V
Management Co., L.L.C.

Series A Financing. On February 19, 1998, April 2, 1998, July 31, 1998 and
October 29, 1998, we issued an aggregate of 8,961,812 shares of Series A
preferred stock to 8 investors, including Gururaj Deshpande, Daniel E. Smith,
Chikong Shue and Matrix Partners V, L.P. The per share purchase price for our
Series A preferred stock was $.91.

Series B Financing. On December 3, 1998 and February 11, 1999, we issued an
aggregate of 3,607,062 shares of Series B preferred stock to 11 investors,
including Gururaj Deshpande, Daniel E. Smith, Chikong Shue, John E. Dowling
and Matrix Partners V, L.P. The per share purchase price for our Series B
preferred stock was $3.50.

Series C Financing. On March 2, 1999, we issued an aggregate of 2,500,000
shares of Series C preferred stock to 15 investors, including Gururaj
Deshpande, Daniel E. Smith, Chikong Shue, Matrix Partners V, L.P. and Matrix V
Entrepreneurs Fund, L.P. The per share purchase price for our Series C
preferred stock was $8.00.

Common Stock Issuances

During fiscal 1999, Frances M. Jewels, our Chief Financial Officer,
purchased an aggregate of 435,000 shares of common stock for $.33 per share
and Kurt Trampedach, our Vice President of International Sales, purchased an
aggregate of 375,000 shares of common stock for $1.00 per share, each pursuant
to stock restriction agreements that give us the right to repurchase all or a
portion of the shares at their purchase price in the event that the employee
ceases to be employed by us. Other executive officers have purchased shares of
common stock pursuant to similar stock restriction agreements for aggregate
purchase prices which did not exceed $60,000 for any one executive officer.
The repurchase right generally lapses as to 20% of the shares subject to such
option approximately one year from the hire date of the executive officer and
thereafter lapses as to an additional 5% of the shares for each full three
months of employment completed by such person.

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

47
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of our common stock as of July 31, 1999, by:

. each person who owns beneficially more than 5% of the outstanding shares
of our common stock;

. each of our directors and the Named Executive Officers; and

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

The number of shares of common stock deemed outstanding prior to this
offering includes 70,556,337 shares of common stock outstanding as of July 31,
1999, after giving effect to the conversion of all shares of redeemable
convertible preferred stock into common stock. The number of shares of common
stock deemed outstanding after this offering also includes the 7,475,000
shares that are being offered for sale by us in this offering. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission, and includes voting and investment power with respect to
shares. Common stock subject to options exercisable within 60 days of July 31,
1999 are deemed outstanding for purposes of computing the percentage ownership
of the person holding such option but are not deemed outstanding for purposes
of computing the percentage ownership of any other person. Unless otherwise
indicated below, to our knowledge, all persons named in the table have sole
voting and investment power with respect to their shares of common stock,
except to the extent authority is shared by spouses under applicable law.
Unless otherwise indicated, the address of each person owning more than 5% of
the outstanding shares of common stock is c/o Sycamore Networks, Inc., 10
Elizabeth Drive, Chelmsford, Massachusetts 01824.
<TABLE>
<CAPTION>
Percentage of
Common Stock
Number of Outstanding(%)
Shares -----------------
Beneficially Before After
Name and Address of Beneficial Owner Owned Offering Offering
------------------------------------ ------------ -------- --------
<S> <C> <C> <C>
Gururaj Deshpande(1)........................... 16,336,869 23.2 20.9
Daniel E. Smith................................ 14,703,183 20.8 18.8
Matrix V Management Co., L.L.C.(2)
1000 Winter Street, Suite 4500
Waltham, MA 02154............................. 12,586,869 17.8 16.1
Ryker Young.................................... 1,021,812 1.4 1.3
Timothy Barrows(2)
c/o Matrix V Management Co., L.L.C.
1000 Winter Street, Suite 4500
Waltham, MA 02154............................. 12,586,869 17.8 16.1
Paul J. Ferri(2)
c/o Matrix V Management Co., L.L.C.
1000 Winter Street, Suite 4500
Waltham, MA 02154............................. 12,586,869 17.8 16.1
John W. Gerdelman(3)........................... *
Jaishree Deshpande, as Trustee of the Gururaj
Deshpande Grantor Retained Annuity Trust...... 6,000,000 8.5 7.6
All executive officers and directors as a group
(12 persons).................................. 50,046,135 70.9 64.1
</TABLE>
- --------
* Less than 1% of the outstanding common stock.
(1) Includes 1,312,500 shares held by the Deshpande Irrevocable Trust and
6,000,000 shares held by Jaishree Deshpande, as Trustee of the Gururaj
Deshpande Grantor Retained Annuity Trust. Jaishree Deshpande is Mr.
Deshpande's wife. Mr. Deshpande disclaims beneficial ownership of the
shares held by the Deshpande Irrevocable Trust.
(2) Composed of 11,328,180 shares held by Matrix Partners V, L.P. and
1,258,689 shares held by Matrix V Entrepreneurs Fund, L.P. Matrix V
Management Co., L.L.C. is the general partner of each of Matrix Partners
V, L.P. and Matrix V Entrepreneurs Fund, L.P. Mr. Barrows and Mr. Ferri,
directors of Sycamore, are general partners of Matrix V Management Co.,
L.L.C. Mr. Barrows and Mr. Ferri disclaim beneficial ownership of the
shares held by Matrix Partners V, L.P. and Matrix V Entrepreneurs Fund,
L.P. except to the extent of their pecuniary interests therein arising
from their general partnership interests in Matrix V Management Co.,
L.L.C.
(3) Mr. Gerdelman was elected to our board of directors in September 1999.

48
<PAGE>

DESCRIPTION OF CAPITAL STOCK

After this offering, the authorized capital stock of Sycamore will consist
of 250,000,000 shares of common stock, $.001 par value per share, and
5,000,000 shares of preferred stock, $.01 par value per share. As of July 31,
1999, there were outstanding:

. 70,556,337 shares of common stock held by 138 stockholders of record,
assuming the conversion into common stock of all outstanding shares of
redeemable convertible preferred stock, and

. options to purchase an aggregate of 1,686,300 shares of common stock.

Based upon the number of shares outstanding as of that date, and giving
effect to the issuance of the shares of common stock offered by Sycamore in
this offering, there will be 78,031,337 shares of common stock outstanding
upon the closing of this offering.

The following summary of provisions of our securities, various provisions
of our amended and restated certificate of incorporation and our amended and
restated bylaws and provisions of applicable law is not intended to be
complete and is qualified by reference to the provisions of applicable law and
to our amended and restated certificate of incorporation and amended and
restated bylaws included as exhibits to the Registration Statement of which
this prospectus is a part. See "Where You Can Find More Information."

Common Stock

Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive
proportionately any such dividends declared by the board of directors, subject
to any preferential dividend rights of outstanding preferred stock. Upon the
liquidation, dissolution or winding up of Sycamore, the holders of common
stock are entitled to receive ratably the net assets of Sycamore available
after the payment of all debts and other liabilities and subject to the prior
rights of any outstanding preferred stock. Holders of common stock have no
preemptive, subscription, redemption or conversion rights. The rights,
preferences and privileges of holders of common stock are subject to the
rights of the holders of shares of any series of preferred stock which
Sycamore may designate and issue in the future. Certain holders of common
stock have the right to require Sycamore to register their shares of common
stock under the Securities Act in certain circumstances. See "Shares Eligible
for Future Sale."

Preferred Stock

Under the terms of our amended and restated certificate of incorporation to
be filed as of the closing of this offering, the board of directors is
authorized to issue shares of preferred stock in one or more series without
stockholder approval. The board has discretion to determine the rights,
preferences, privileges and restrictions, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences
of each series of preferred stock.

The purpose of authorizing the board of directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated
with a stockholder vote on specific issuances. The issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could make it more difficult for a
third party to acquire, or could discourage a third party from acquiring, a
majority of the outstanding voting stock of Sycamore. Sycamore has no present
plans to issue any shares of preferred stock.

Delaware Law and Certain Charter and By-Law Provisions; Anti-Takeover Effects

Sycamore is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. In general, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person

49
<PAGE>

became an interested stockholder, unless the business combination is approved
in a prescribed manner. A "business combination" includes mergers, asset sales
and other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within three
years did own, 15% or more of the corporation's voting stock.

The amended and restated certificate of incorporation and amended and
restated by-laws to be effective on the closing of this offering provide:

. that the board of directors be divided into three classes, as nearly
equal in size as possible, with staggered three-year terms;

. that directors may be removed only for cause by the affirmative vote of
the holders of at least 66 2/3% of the shares of our capital stock
entitled to vote; and

. that any vacancy on the board of directors, however occurring, including
a vacancy resulting from an enlargement of the board, may only be filled
by vote of a majority of the directors then in office.

The classification of the board of directors and the limitations on the
removal of directors and filling of vacancies could have the effect of making
it more difficult for a third party to acquire, or of discouraging a third
party from acquiring, Sycamore.

The amended and restated certificate of incorporation and amended and
restated by-laws also provide that, after the closing of this offering:

. any action required or permitted to be taken by the stockholders at an
annual meeting or special meeting of stockholders may only be taken if it
is properly brought before such meeting and may not be taken by written
action in lieu of a meeting; and

. special meetings of the stockholders may only be called by the Chairman
of the board of directors, the President, or by the board of directors.

Our amended and restated by-laws provide that, in order for any matter to
be considered "properly brought" before a meeting, a stockholder must comply
with requirements regarding advance notice to us. These provisions could delay
until the next stockholders' meeting stockholder actions which are favored by
the holders of a majority of our outstanding voting securities. These
provisions may also discourage another person or entity from making a tender
offer for our common stock, because such person or entity, even if it acquired
a majority of our outstanding voting securities, would be able to take action
as a stockholder (such as electing new directors or approving a merger) only
at a duly called stockholders meeting, and not by written consent.

Delaware's corporation law provides generally that the affirmative vote of
a majority of the shares entitled to vote on any matter is required to amend a
corporation's certificate of incorporation or by-laws, unless a corporation's
certificate of incorporation or by-laws, as the case may be, requires a
greater percentage. Our amended and restated certificate of incorporation
requires the affirmative vote of the holders of at least 66 2/3% of the shares
of our capital stock entitled to vote to amend or repeal any of the foregoing
provisions of our amended and restated certificate of incorporation. Generally
our amended and restated by-laws may be amended or repealed by a majority vote
of the board of directors or the holders of a majority of the shares of our
capital stock issued and outstanding and entitled to vote. To amend our
amended and restated by-laws regarding special meetings of stockholders,
written actions of stockholders in lieu of a meeting, and the election,
removal and classification of members of the board of directors requires the
affirmative vote of the holders of at least 66 2/3% of the shares of our
capital stock entitled to vote. The stockholder vote would be in addition to
any separate class vote that might in the future be required pursuant to the
terms of any series preferred stock that might be outstanding at the time any
such amendments are submitted to stockholders.

50
<PAGE>

Limitation of Liability and Indemnification

Our amended and restated certificate of incorporation provides that our
directors and officers shall be indemnified by us to the fullest extent
authorized by Delaware law. This indemnification would cover all expenses and
liabilities reasonably incurred in connection with their services for or on
behalf of us. In addition, our amended and restated certificate of
incorporation provides that our directors will not be personally liable for
monetary damages to us for breaches of their fiduciary duty as directors,
unless they violated their duty of loyalty to us or our stockholders, acted in
bad faith, knowingly or intentionally violated the law, authorized illegal
dividends or redemptions or derived an improper personal benefit from their
action as directors.

Transfer Agent and Registrar

The transfer agent and registrar for the common stock is EquiServe Limited
Partnership.

51
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, we will have 78,680,725 shares of common
stock outstanding (assuming no exercise of outstanding options). Of these
shares, the 7,475,000 shares to be sold in this offering will be freely
tradable without restriction or further registration under the Securities Act
of 1933, as amended, except that any shares purchased by our affiliates, as
that term is defined in Rule 144 under the Securities Act, may generally only
be sold in compliance with the limitations of Rule 144 described below.

The remaining 71,205,725 shares of common stock held by existing
stockholders were issued and sold by us in reliance on exemptions from the
registration requirements of the Securities Act. Of these shares, 65,471,542
shares will be subject to "lock-up" agreements described below on the
effective date of this offering. Upon expiration of the lock-up agreements,
52,817,419 shares will become eligible for sale subject in most cases to the
limitations of either Rule 144 or Rule 701. In addition, holders of stock
options could exercise such options and sell certain of the shares issued upon
exercise as described below under "Stock Options".

Sales of Restricted Shares

<TABLE>
<CAPTION>
Approximate
Shares
Eligible
Days After Date of for Future
This Prospectus Sale Comment
------------------ ----------- -------
<S> <C> <C>
On effectiveness................. 7,475,000 Freely tradeable sold in offering
90 days after effectiveness...... 368,587 Shares salable under Rule 144 or 701
180 days after effectiveness Shares salable under
(expiration of lock-up)......... 52,817,419 Rule 144, 144(k) or 701
</TABLE>

Certain of the shares listed in the foregoing table as not salable until
180 days after effectiveness may become salable earlier as described below
under "Lock-up Agreements".

In general, under Rule 144, a person (or persons whose shares are
aggregated), including an affiliate, who has beneficially owned shares for at
least one year is entitled to sell, within any three-month period, a number of
such shares that does not exceed the greater of (1) one percent of the then
outstanding shares of common stock (approximately 786,807 shares immediately
after this offering) or (2) the average weekly trading volume in the common
stock in the over-the-counter market during the four calendar weeks preceding
the date on which notice of such sale is filed, provided certain requirements
concerning availability of public information, manner of sale and notice of
sale are satisfied. In addition, our affiliates must comply with the
restrictions and requirements of Rule 144, other than the one-year holding
period requirement, in order to sell shares of common stock which are not
restricted securities.

Under Rule 144(k), a person who is not an affiliate and has not been an
affiliate for at least three months prior to the sale and who has beneficially
owned shares for at least two years may resell such shares without compliance
with the foregoing requirements. In meeting the one-and two-year holding
periods described above, a holder of shares can include the holding periods of
a prior owner who was not an affiliate. The one-and two-year holding periods
described above do not begin to run until the full purchase price or other
consideration is paid by the person acquiring the shares from the issuer or an
affiliate. Rule 701 provides that currently outstanding shares of common stock
acquired under our employee compensation plans, and shares of common stock
acquired upon exercise of presently outstanding options granted under these
plans, may be resold beginning 90 days after the date of this prospectus:

. by persons, other than affiliates, subject only to the manner of sale
provisions of Rule 144, and
. by affiliates under Rule 144 without compliance with its one-year
minimum holding period, subject to certain limitations.

52
<PAGE>

Stock Options

At July 31, 1999, approximately 1,686,300 shares of common stock were
issuable pursuant to immediately exercisable options granted under our 1998
Stock Incentive Plan of which approximately 1,378,800 shares are not subject
to lock-up agreements with the Underwriters.

We intend to file a registration statement on Form S-8 under the Securities
Act as soon as practicable following the date of this prospectus, to register
up to 19,888,700 shares of common stock issuable under our stock plans,
including the 1,686,300 shares of common stock subject to outstanding options
as of July 31, 1999. This registration statement is expected to become
effective upon filing.

Lock-up Agreements

All officers and directors and certain stockholders holding an aggregate of
approximately 65,471,542 shares of Sycamore's Common Stock have agreed,
subject to certain exceptions, not to offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly (or enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of), any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for shares of
Common Stock for a period of 180 days after the date of this Prospectus,
without the prior written consent of Morgan Stanley & Co. Incorporated.
However, if the reported last sale price of the Common Stock on the Nasdaq
National Market is at least twice the initial public offering price per share
for 20 of the 30 trading days ending on the last trading day preceding the
90th day after the date of this Prospectus, 25% of the shares of Common Stock
of Sycamore subject to the 180-day restriction described above (none of which
may be held by officers or directors) will be released from these
restrictions. The release of these shares will occur on the later to occur of:

. the 90th day after the date of this Prospectus if Sycamore makes its
first post-offering public release of its quarterly or annual earnings
results during the period beginning on the eleventh trading day after
the date of this Prospectus and ending on the day prior to the 90th day
after the date of this Prospectus, or
. on the second trading day following the first public release of
Sycamore's quarterly or annual results occurring on or after the 90th
day after the date of this Prospectus, if Sycamore does not make its
first post-offering public release as set forth in the preceding clause.

Morgan Stanley & Co. Incorporated may in its sole discretion choose to release
any or all of these shares from such restrictions prior to the expiration of
such 90 or 180-day period.

Registration Rights

After this offering, the holders of approximately 57,858,000 shares of
common stock will be entitled to rights with respect to the registration of
such shares under the Securities Act. Under the terms of the agreement between
us and the holders of such registrable securities, if we propose to register
any of our securities under the Securities Act, either for our own account or
for the account of other security holders exercising registration rights, such
holders are entitled to notice of such registration and are entitled to
include shares of such common stock therein. Additionally, such holders are
also entitled to demand registration rights pursuant to which they may require
us on up to two occasions to file a registration statement under the
Securities Act at our expense with respect to shares of our common stock, and
we are required to use our best efforts to effect such registration. Further,
holders may require us on up to three occasions to file additional
registration statements on Form S-3 at our expense. All of these registration
rights are subject to conditions and limitations, among them the right of the
underwriters of an offering to limit the number of shares included in such
registration.

53
<PAGE>

UNDERWRITERS

Under the terms and subject to the conditions contained in the underwriting
agreement dated the date hereof, the underwriters named below, for whom Morgan
Stanley & Co. Incorporated, Lehman Brothers Inc, J. P. Morgan Securities Inc
and Dain Rauscher Wessels, a division of Dain Rauscher Incorporated, are
acting as representatives, have severally agreed to purchase, and we have
agreed to sell to them, an aggregate of 7,475,000 shares of common stock. The
number of shares of common stock that each underwriter has agreed to purchase
is set forth opposite its name below:

<TABLE>
<CAPTION>
Number of
Name Shares
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated............................. 2,868,750
Lehman Brothers Inc........................................... 1,275,000
J. P. Morgan Securities Inc................................... 1,275,000
Dain Rauscher Wessels, a division of Dain Rauscher
Incorporated................................................. 956,250
Robert W. Baird & Co. Incorporated............................ 50,000
BancBoston Robertson Stephens Inc............................. 100,000
Credit Suisse First Boston Corporation........................ 100,000
A.G. Edwards & Sons, Inc...................................... 100,000
First Albany Corporation...................................... 50,000
First Union Securities, Inc................................... 100,000
Goldman, Sachs & Co........................................... 100,000
Hambrecht & Quist LLC......................................... 100,000
Edward D. Jones & Co., L.P.................................... 100,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated............ 100,000
Brad Peery Inc................................................ 50,000
Raymond James & Associates, Inc............................... 50,000
Warburg Dillon Read LLC....................................... 100,000
---------
Total....................................................... 7,475,000
=========
</TABLE>

The underwriters are offering the shares subject to their acceptance of the
shares from us and subject to prior sale. The underwriting agreement provides
that the obligations of the several underwriters to pay for and accept
delivery of the shares of common stock offered hereby are subject to the
approval of certain legal matters by their counsel and to certain other
conditions. The underwriters are obligated to take and pay for all of the
shares of common stock offered hereby, other than those covered by the over-
allotment option described below, if any such shares are taken.

The underwriters initially propose to offer part of the shares of common
stock directly to the public at the initial public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $1.73 a share under the initial public offering
price. Any underwriters may allow, and such dealers may reallow, a concession
not in excess of $.10 a share to other underwriters or to certain other
dealers. After the initial offering of the shares of common stock, the
offering price and other selling terms may from time to time be varied by the
representatives of the underwriters.

At our request, the underwriters have reserved at the initial public
offering price up to approximately 200,000 shares of common stock for sale to
Williams Communications. In addition, at our request, the underwriters have
reserved up to approximately 775,000 shares of common stock to be sold in the
offering and offered hereby for sale, at the initial public offering price, to
our directors, officers, employees, customers and other business associates.
There can be no assurance that any of the reserved shares will be purchased.
The number of shares of common stock available for sale to the general public
will be reduced to the extent these parties purchase such reserved shares. Any
reserved shares which are not so purchased will be offered by the underwriters
to the general public on the same basis as the other shares offered hereby.

54
<PAGE>

Sycamore, our directors, officers and certain other of our stockholders
have each agreed, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the underwriters, during the period ending 180 days
after the date of this prospectus, not to, directly or indirectly:

. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock (whether
such shares or any such securities are then owned by such person or are
thereafter acquired directly from us); or

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

whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise. This lock-up
restriction is subject, in certain circumstances for shares held by
stockholders other than officers and directors of Sycamore, to earlier
release. See "Shares Eligible for Future Sale--Lock-up Agreements".

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

Our common stock has been approved for quotation on the Nasdaq National
Market under the symbol "SCMR."

In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the common stock, the underwriters may bid for, and purchase,
shares of common stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an underwriter or a dealer for
distributing the common stock in the offering if the syndicate repurchases
previously distributed shares of common stock in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the common
stock above independent market levels. The underwriters are not required to
engage in these activities and may end any of these activities at any time.

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

Pricing of the Offering

Prior to this offering, there has been no public market for the shares of
common stock. Consequently, the public offering price for the shares of common
stock was determined by negotiations between Sycamore and the representatives
of the underwriters. Among the factors considered in determining the public
offering price were our record of operations, our current financial position
and future prospects, the experience of our management, sales, earnings and
certain of our other financial and operating information in recent periods,
the price-earnings ratios, price-sales ratios, market prices of securities and
certain financial and operating information of companies engaged in activities
similar to ours.

55
<PAGE>

LEGAL MATTERS

The validity of the shares of common stock we are offering will be passed
upon for us by Hale and Dorr LLP, Boston, Massachusetts. Certain legal matters
in connection with this offering will be passed upon for the underwriters by
Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.

EXPERTS

The financial statements as of July 31, 1998 and 1999 and for the period
from inception (February 17, 1998) through July 31, 1998 and for the year
ended July 31, 1999 included in this prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common
stock we propose to sell in this offering. This prospectus, which constitutes
part of the registration statement, does not contain all of the information
set forth in the registration statement. For further information about us and
the common stock we propose to sell in this offering, we refer you to the
registration statement and the exhibits and schedules filed as a part of the
registration statement. Statements contained in this prospectus as to the
contents of any contract or other document filed as an exhibit to the
registration statement are not necessarily complete. If a contract or document
has been filed as an exhibit to the registration statement, we refer you to
the copy of the contract or document that has been filed. The registration
statement may be inspected without charge at the principal office of the
Securities and Exchange Commission in Washington, D.C. and copies of all or
any part of which may be inspected and copied at the public reference
facilities maintained by the Securities and Exchange Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Room 1024, Washington, D.C. 20549, and at the
Commission's regional offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of such material can also be
obtained at prescribed rates by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the
Securities and Exchange Commission maintains a website (http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and
Exchange Commission.

56
<PAGE>

SYCAMORE NETWORKS, INC.

INDEX TO FINANCIAL STATEMENTS

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

Balance Sheets at July 31, 1998 and July 31, 1999.......................... F-3

Statements of Operations for the period from inception (February 17, 1998)
through July 31, 1998 and the year ended July 31, 1999.................... F-4

Statements of Stockholders' Deficit for the period from inception (February
17, 1998) through July 31, 1998 and the year ended July 31, 1999.......... F-5

Statements of Cash Flows for the period from inception (February 17, 1998)
through July 31, 1998 and the year ended July 31, 1999.................... F-6

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

F-1
<PAGE>

Report of Independent Accountants

To the Stockholders and the Board of Directors of Sycamore Networks, Inc.:

In our opinion, the accompanying balance sheets and the related statements
of operations, stockholders' deficit and cash flows present fairly, in all
material respects, the financial position of Sycamore Networks, Inc. at July
31, 1998 and 1999, and the results of its operations and its cash flows for
the period from inception (February 17, 1998) to July 31, 1998 and for the
year ended July 31, 1999 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

PricewaterhouseCoopers LLP
Boston, Massachusetts
August 23, 1999

F-2
<PAGE>

SYCAMORE NETWORKS, INC.

BALANCE SHEETS
(in thousands, except share data)

<TABLE>
<CAPTION>
Pro Forma
July 31, July 31, July 31, 1999
1998 1999 (unaudited)
-------- -------- -------------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................... $1,197 $ 21,969 $ 21,969
Marketable securities....................... 3,082 7,020 7,020
Accounts receivable......................... -- 11,410 11,410
Inventories................................. -- 6,608 6,608
Prepaids and other current assets........... 200 5,153 5,153
------ -------- --------
Total current assets......................... 4,479 52,160 52,160
Property and equipment, net.................. 500 5,288 5,288
Other assets................................. 102 464 464
------ -------- --------
Total assets................................. $5,081 $ 57,912 $ 57,912
====== ======== ========
Liabilities, Redeemable Convertible Preferred
Stock and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of notes payable............ $ -- $ 1,097 $ 1,097
Accounts payable............................ 42 5,750 5,750
Accrued compensation........................ 30 1,403 1,403
Accrued expenses............................ 66 1,751 1,751
Other current liabilities................... -- 1,709 1,709
------ -------- --------
Total current liabilities.................... 138 11,710 11,710
Notes payable................................ -- 4,054 4,054
Commitments and contingencies (Note 5)
Series A Redeemable Convertible Preferred
Stock $.01 par value; 6,380,000 and
8,975,000 shares authorized at July 31, 1998
and July 31, 1999, respectively; 6,186,812
and 8,961,812 shares issued and outstanding
at July 31, 1998 and July 31, 1999,
respectively; 0 shares authorized, issued
and outstanding on a pro forma basis;
liquidation value of $8,155 at July 31,
1999........................................ 5,621 8,146 --
Series B Redeemable Convertible Preferred
Stock $.01 par value; 3,625,000 shares
authorized at July 31, 1999; 3,607,062
shares issued and outstanding at July 31,
1999; 0 shares authorized, issued and
outstanding on a pro forma basis;
liquidation value of $12,625 at July 31,
1999........................................ -- 12,625 --
Series C Redeemable Convertible Preferred
Stock $.01 par value; 2,500,000 shares
authorized, issued and outstanding at July
31, 1999; 0 shares authorized, issued and
outstanding on a pro forma basis;
liquidation value of $20,000 at July 31,
1999........................................ -- 20,000 --
Series D Redeemable Convertible Preferred
Stock $.01 par value; 692,201 shares
authorized, issued and outstanding at July
31, 1999; 0 shares authorized, issued and
outstanding on a pro forma basis;
liquidation value of $15,000 at July 31,
1999........................................ -- 15,000 --
Stockholders' equity (deficit):
Preferred stock, $.01 par value, 5,000,000
shares authorized, 0 shares issued and
outstanding on a pro forma basis........... -- -- --
Common stock, $.001 par value; 91,000,000
shares authorized; 7,035,000 and 23,273,112
shares issued and outstanding at July 31,
1998 and July 31, 1999, respectively;
250,000,000 shares authorized; 70,556,337
shares issued and outstanding on a pro
forma basis................................ 7 23 71
Additional paid-in capital.................. 187 30,826 86,549
Accumulated deficit......................... (693) (20,183) (20,183)
Notes receivable............................ -- (360) (360)
Deferred compensation....................... (179) (23,929) (23,929)
------ -------- --------
Total stockholders' equity (deficit)......... (678) (13,623) 42,148
------ -------- --------
Total liabilities, redeemable convertible
preferred stock and stockholders' equity
(deficit)................................... $5,081 $ 57,912 $ 57,912
====== ======== ========
</TABLE>

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

F-3
<PAGE>

SYCAMORE NETWORKS, INC.

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

<TABLE>
<CAPTION>
Period from Inception
(February 17, 1998) Year Ended
through July 31, 1998 July 31, 1999
--------------------- -------------
<S> <C> <C>
Revenues.................................. $ -- $ 11,330
Cost of revenues.......................... -- 8,486
----- --------
Gross profit.............................. -- 2,844
Operating expenses:
Research and development................. 497 13,955
Sales and marketing...................... 92 4,064
General and administrative............... 199 1,405
Amortization of stock compensation....... 5 3,469
----- --------
Total operating expenses................. 793 22,893
----- --------
Loss from operations...................... (793) (20,049)
Interest income, net...................... 100 559
----- --------
Net loss.................................. $(693) $(19,490)
===== ========
Basic and diluted net loss per share...... $(.55) $ (6.27)
Weighted average shares used in computing
basic and diluted net loss per share..... 1,251 3,108
</TABLE>

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

F-4
<PAGE>

SYCAMORE NETWORKS, INC.

STATEMENTS OF STOCKHOLDERS' DEFICIT
(in thousands)

<TABLE>
<CAPTION>
Common Stock
-------------
Additional Total
paid-in Accumulated Notes Deferred Stockholders'
Shares Amount Capital Deficit Receivable Compensation Deficit
------ ------ ---------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock.................. 7,035 $ 7 $ 3 $ -- $ -- $ -- $ 10
Deferred compensation
expense associated with
equity awards.......... -- -- 184 -- -- (184) --
Amortization of deferred
compensation........... -- -- -- -- -- 5 5
Net loss................ -- -- -- (693) -- -- (693)
------ --- ------- -------- ----- -------- --------
Balance, July 31, 1998.. 7,035 7 187 (693) -- (179) (678)
------ --- ------- -------- ----- -------- --------
Exercise of stock
options................ 6,074 6 2,935 -- -- -- 2,941
Issuance of common
stock.................. 10,164 10 485 -- -- -- 495
Deferred compensation
expense associated with
equity awards.......... -- -- 25,159 -- -- (25,159) --
Issuance of equity
awards in exchange for
services............... -- -- 2,060 -- -- -- 2,060
Amortization of deferred
compensation........... -- -- -- -- -- 1,409 1,409
Issuance of common stock
in exchange for notes
receivable............. -- -- -- -- (360) -- (360)
Net loss................ -- -- -- (19,490) -- -- (19,490)
------ --- ------- -------- ----- -------- --------
Balance, July 31, 1999.. 23,273 $23 $30,826 $(20,183) $(360) $(23,929) $(13,623)
====== === ======= ======== ===== ======== ========
</TABLE>

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

F-5
<PAGE>

SYCAMORE NETWORKS, INC.

STATEMENTS OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>
Period from
Inception
(February 17, 1998)
through Year Ended
July 31, 1998 July 31, 1999
------------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................... $ (693) $(19,490)
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization.............. 27 948
Amortization of stock compensation......... 5 3,469
Changes in operating assets and liabilities:
Accounts receivable........................ -- (11,410)
Inventories................................ -- (6,608)
Prepaids and other current assets.......... (75) (4,953)
Accounts payable........................... 42 5,708
Accrued expenses and other current
liabilities............................... 96 4,767
------- --------
Net cash used in operating activities........ (598) (27,569)
------- --------
Cash flows from investing activities:
Purchases of property and equipment........ (528) (5,736)
Purchases of marketable securities......... (3,082) (10,115)
Maturities of marketable securities........ -- 6,177
Increase in other assets................... (102) (362)
------- --------
Net cash used in investing activities........ (3,712) (10,036)
------- --------
Cash flows from financing activities:
Proceeds from issuance of redeemable
convertible preferred stock, net.......... 5,496 50,150
Proceeds from issuance of common stock..... 11 3,076
Proceeds from notes payable................ -- 5,184
Payments on notes payable.................. -- (33)
------- --------
Net cash provided by financing activities.... 5,507 58,377
------- --------
Net increase in cash and cash equivalents.... 1,197 20,772
Cash and cash equivalents, beginning of
period...................................... -- 1,197
------- --------
Cash and cash equivalents, end of period..... $ 1,197 $ 21,969
======= ========
Supplemental cash flow information:
Cash paid for interest..................... $ -- $ 170
Supplementary non cash activity:
Preferred stock note receivable............ 125 --
Issuance of common stock in exchange for
notes receivable.......................... -- 360
</TABLE>

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

F-6
<PAGE>

SYCAMORE NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS

1. Nature of the Business:

Sycamore Networks, Inc. (the "Company") was incorporated in Delaware on
February 17, 1998. The Company develops and markets networking products that
enable service providers to quickly and cost effectively provide bandwidth and
create new high-speed data services. To date, the Company has principally
marketed its products in the United States. Through May 1, 1999, the Company
was considered to be in the development stage and was principally engaged in
research and development, raising capital and building its management team.
The Company shipped its first product in May 1999.

The Company is subject to risks common to technology-based companies
including, but not limited to, the development of new technology, development
of markets and distribution channels, dependence on key personnel, and the
ability to obtain additional capital as needed to meet its product plans. The
Company has a limited operating history and has never achieved profitability.
To date the Company has been funded principally by private equity financing.
The Company's ultimate success is dependent upon its ability to raise
additional capital and to successfully develop and market its products.

2. Significant Accounting Policies:

The accompanying financial statements of the Company reflect the
application of certain significant accounting policies as described below:

Cash Equivalents and Marketable Securities

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents, and
investments with original maturity dates greater than three months but less
than 12 months to be short-term investments. The Company classifies all
marketable securities as available-for-sale. The securities are stated at
their fair market value. At July 31, 1998 and 1999, the fair value of
marketable securities, which were comprised of commercial paper and
certificates of deposit, approximated amortized cost and, as such, unrealized
holding gains and losses were not material. The fair value of marketable
securities was determined based on quoted market prices at the reporting date
for those instruments.

Inventory

Inventories are stated at the lower of cost (first-in, first-out basis) or
market (net realizable value).

Revenue Recognition

Revenue from product sales is recognized upon shipment provided that a
purchase order has been received or a contract has been executed, there are no
uncertainties regarding customer acceptance, the fee is fixed and determinable
and collectibility is deemed probable. If uncertainties regarding customer
acceptance exist, revenue is recognized when such uncertainties are resolved.
Revenue from technical support and maintenance contracts is deferred and
recognized ratably over the period of the related agreements. The Company
records a warranty liability for parts and labor on its products. Warranty
periods are generally three years from installation date. Estimated warranty
costs are recorded at the time of revenue recognition.

F-7
<PAGE>

SYCAMORE NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Property and Equipment

Property and equipment is stated at cost and depreciated over the estimated
useful lives of the assets using the straight-line method, based upon the
following asset lives:

<TABLE>
<S> <C>
Computer and
telecommunications
equipment.................. 2 to 3 years
Computer software........... 2 to 3 years
Furniture and office
equipment.................. 5 years
Leasehold improvements...... Shorter of lease term or useful life of asset
</TABLE>

The cost of significant additions and improvements is capitalized and
depreciated while expenditures for maintenance and repairs are charged to
expense as incurred. Upon retirement or sale, the cost and related accumulated
depreciation of the assets are removed from the accounts and any resulting
gain or loss is reflected in the determination of net income or loss.

Research and Development and Software Development Costs

The Company's products are highly technical in nature and require a large
and continuing research and development effort. All research and development
costs are expensed as incurred. Software development costs incurred prior to
the establishment of technological feasibility are charged to expense.
Technological feasibility is demonstrated by the completion of a working
model. Software development costs incurred subsequent to the establishment of
technological feasibility are capitalized until the product is available for
general release to customers. Amortization is based on the greater of (i) the
ratio that current gross revenues for a product bear to the total of current
and anticipated future gross revenues for that product or (ii) the straight-
line method over remaining estimated life of the product. To date, the period
between achieving technological feasibility and the general availability of
the related products has been short and software development costs qualifying
for capitalization have not been material. Accordingly, the Company has not
capitalized any software development costs.

Income Taxes

Income taxes are accounted for under the liability method. Under this
method, deferred tax assets and liabilities are recorded based on temporary
differences between the financial statement amounts and the tax bases of
assets and liabilities measured using enacted tax rates in effect for the year
in which the differences are expected to reverse. The Company periodically
evaluates the realizability of its net deferred tax assets and records a
valuation allowance if, based on the weight of available evidence, it is more
likely than not that some or all of the deferred tax assets will not be
realized.

Use of Estimates

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

Concentrations of Credit Risk and Significant Customer Information

Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents,
marketable securities and accounts receivable. The Company invests its excess
cash primarily in deposits with commercial banks and high-quality corporate
securities. For the year ended July 31, 1999, one customer accounted for all
of the Company's revenue. The Company does not require collateral for sales to
customers.

F-8
<PAGE>

SYCAMORE NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Certain components and parts used in the Company's products are procured
from a single source. The Company obtains parts from one vendor only, even
where multiple sources are available, to maintain quality control and enhance
working relationships with suppliers. These purchases are made under existing
contracts or purchase orders. The failure of a supplier, including
subcontractor, to deliver on schedule could delay or interrupt the Company's
delivery of products and thereby adversely affect the Company's revenues and
profits.

Other Comprehensive Income

The Company reports comprehensive income (loss) in accordance with
Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive
Income" (FAS 130). The comprehensive net loss for the period from inception
(February 17, 1998) through July 31, 1998 and for the year ended July 31, 1999
does not differ from the reported net loss.

Net Loss Per Share

Basic net loss per share is computed by dividing the net loss for the
period by the weighted average number of common shares outstanding during the
period. Diluted net loss per share is computed by dividing the net loss for
the period by the weighted average number of common and common equivalent
shares outstanding during the period, if dilutive. Common equivalent shares
are composed of unvested shares of restricted common stock and the incremental
common shares issuable upon the exercise of stock options and unvested
restricted common shares. There were no dilutive common equivalent shares for
the period.

Pro forma net loss per share for the period from inception (February 17,
1998) through July 31, 1998 and the year ended July 31, 1999 is computed using
the weighted average number of common shares outstanding, including the pro
forma effects of the automatic conversion of the Company's Series A, B, C and
D redeemable convertible preferred stock into shares of the Company's common
stock effective upon the closing of the Company's initial public offering as
if such conversion occurred at the date of original issuance. There were no
dilutive common equivalent shares for any of the periods presented.

F-9
<PAGE>

SYCAMORE NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

The following table sets forth the computation of basic and diluted net
loss per share:

<TABLE>
<CAPTION>
Period from Inception
(February 17, 1998) Year Ended
through July 31, 1998 July 31, 1999
--------------------- -------------
(in thousands, except per share
data)
<S> <C> <C>
Numerator:
Net loss.................................. $ (693) $(19,490)
Denominator

Historical:
Weighted average common shares
outstanding.............................. 6,507 15,195
Weighted average common shares outstanding
subject to repurchase.................... (5,256) (12,087)
------ --------
Denominator for basic and diluted
calculation.............................. 1,251 3,108
------ --------
Basic and diluted net loss per share...... $ (.55) $ (6.27)
====== ========
Pro Forma:
Historical weighted average common shares
outstanding.............................. 3,108
Weighted average number of shares assumed
upon conversion of redeemable convertible
common stock............................. 35,037
--------
Shares used in computing pro forma basic
and diluted net loss per share
(unaudited).............................. 38,145
========
Pro forma basic and diluted net loss per
share (unaudited)........................ $ (.51)
========
</TABLE>

Options to purchase 1,686,300 shares of common stock at an average exercise
price of $1.36 per share has not been included in the computation of diluted
net loss per share for the year ended July 31, 1999 as their effect would have
been anti-dilutive.

Pro Forma Balance Sheet (Unaudited)

Upon the closing of the Company's initial public offering, all of the
outstanding shares of Series A, B, C and D redeemable convertible preferred
stock will automatically convert into 47,283,225 shares of the Company's
common stock. The unaudited pro forma presentation of the balance sheet has
been prepared assuming the conversion of the preferred stock into common stock
as of July 31, 1999.

Stock Based Compensation

The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No.
25,"Accounting for Stock Issued to Employees," ("APB No. 25") and complies
with the disclosure provisions of Statement of Financial Accounting Standards
No. 123,"Accounting for Stock-Based Compensation," ("SFAS No. 123").

Segment Information

The Company has adopted Statement of Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information,"
which requires companies to report selected information about operating
segments, as well as enterprise-wide disclosures about products, services,
geographic areas, and major customers. Operating segments are determined based
on the way management organizes its business for making operating decisions
and assessing performance. The Company has determined that it conducts its
operations in one business segment.

F-10
<PAGE>

SYCAMORE NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities," which establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, (collectively referred to
as derivatives) and for hedging activities. The Company will adopt SFAS No.
133 as required by SFAS No. 137, "Deferral of the effective date of the FASB
Statement No. 133," in fiscal year 2001. The adoption of SFAS No. 133 is not
currently expected to have an impact on our financial condition or results of
operations.

3. Inventory

Inventory consisted of the following at July 31, 1999 (in thousands):

<TABLE>
<CAPTION>
1999
------
<S> <C>
Raw materials............................................................ $2,164
Work in process.......................................................... 3,026
Finished goods........................................................... 1,418
------
$6,608
======
</TABLE>

4. Property and Equipment

Property and equipment consisted of the following at July 31, 1998 and 1999
(in thousands):

<TABLE>
<CAPTION>
1998 1999
---- ------
<S> <C> <C>
Computer software and equipment................................... $500 $5,433
Furniture and office equipment.................................... 27 221
Leasehold improvements............................................ -- 609
---- ------
527 6,263
Less accumulated depreciation and amortization.................... (27) (975)
---- ------
$500 $5,288
==== ======
</TABLE>

Depreciation and amortization expense was $27,000 for the period from
inception (February 17, 1998) through July 31, 1998 and $948,000 for the year
ended July 31, 1999.

F-11
<PAGE>

SYCAMORE NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

5. Commitments and Contingencies:

Capital and Operating Leases

The Company's office facility is leased under a noncancelable lease that
expires in 2002. The lease is collateralized by an irrevocable standby letter
of credit in the amount of $92,000, which is collateralized by a U.S. Treasury
Bill. Rent expense under operating leases was $27,500 and $266,000 for the
period from inception (February 17, 1998) through July 31, 1998 and the year
ended July 31, 1999, respectively. At July 31, 1999 future minimum lease
payments under all non-cancelable operating leases are as follows, in
thousands:

<TABLE>
<S> <C>
2000...................................................................... $272
2001...................................................................... 319
2002...................................................................... 159
----
Total future minimum lease payments....................................... $750
====
</TABLE>

Letter of Credit

Included in prepaid expenses and other current assets is a $4 million U.S.
Government security which collateralizes a stand-by letter of credit used for
inventory purchases made by a third party manufacturer on behalf of the
Company. The letter of credit is irrevocable and expires in October 1999.

Notes Payable

In August 1998, the Company entered into an equipment loan agreement with a
bank. Under this loan agreement, the Company may borrow up to $1 million, for
the purpose of acquisition of equipment, for a period of ten months. On July
1, 1999 the Company commenced payments to be repaid in thirty equal monthly
installments. At July 31, 1999, $967,000 was outstanding under this loan
agreement.

In April 1999, the Company entered into an additional equipment loan
agreement with the same bank. Under this loan agreement, the Company may
borrow up to $5 million, for the purpose of acquisition of equipment, for a
period of six months. At January 31, 2000, the outstanding balance will be
converted into a term loan, to be repaid in thirty-six equal monthly
installments commencing February 1, 2000. At July 31, 1999, $4,184,000 was
outstanding under this loan agreement.

The interest on the outstanding loan balances is calculated daily at the
bank's prime rate, plus .5% (8.5% at July 31, 1999). The loans are
collateralized by all the Company's assets, including accounts receivable,
inventory and fixed assets. The Company is required to maintain certain
financial covenants and tangible net worth calculations. Principal payments
under notes payable for the years ended July 31, are as follows: $1,097,000 in
2000; $1,795,000 in 2001; $1,562,000 in 2002 and $697,000 in 2003.

6. Stockholders' Equity

Common Stock

The Company has authorized 91,000,000 shares of common stock, $.001 par
value. The voting, dividend and liquidation rights of the holders of the
common stock are subject to, and qualified by, the rights of the holders of
preferred stock. The holders of the common stock are entitled to one vote for
each share held. The Board of
Directors (the "Board") may declare dividends from lawfully available funds,
subject to any preferential dividend rights of any outstanding preferred stock
and restrictions under the Company's loan agreements. Holders of the common
stock are entitled to receive all assets available for distribution on the
dissolution or liquidation of the Company, subject to any preferential rights
of any outstanding preferred stock.

F-12
<PAGE>

SYCAMORE NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

1998 Stock Incentive Plan

In August 1998, the 1998 Stock Incentive Plan (the "Plan") was adopted by
the Board and received stockholder approval on October 19, 1998. A total of
26,565,000 shares of common stock have been reserved for issuance under the
Plan. The Plan provides for the grant of incentive stock options, nonstatutory
stock options, restricted stock awards and other stock-based awards to
officers, employees, directors, consultants and advisors of the Company. No
participant may receive any award for more than 500,000 shares in any calendar
year. Options may be granted at an exercise price less than, equal to or
greater than the fair market value on the date of grant. The Board determines
the term of each option, the option exercise price, and the vesting terms.
Stock options generally expire ten years from the date of grant and vest over
five years.

All employees who have been granted options by the Company under the 1998
Stock Incentive Plan are eligible to elect immediate exercise of all such
options. However, shares obtained by employees who elect immediate exercise
prior to the original option vesting schedule are subject to the Company's
right of repurchase, at the option exercise price, in the event of
termination. The Company's repurchase rights lapse at the same rate as the
shares would have become exercisable under the original vesting schedule. As
of July 31, 1999, 5,978,700 shares related to immediate option exercises are
subject to repurchase by the Company at per share prices ranging from $.02 to
$3.00 and 18,638,700 were reserved for future issuance.

Restricted Stock

Restricted stock may be issued to employees, officers, directors,
consultants, and other advisors. Shares acquired pursuant to a restricted
stock agreement are subject to a right of repurchase by the Company which
lapses as the restricted stock vests. In the event of termination of services,
the Company has the right to repurchase unvested shares at the original
issuance price. The vesting period is generally five years. The Company issued
7,035,000 and 10,164,312 shares of restricted stock, of which 1,852,500 shares
were issued through the 1998 Stock Incentive Plan, for the period from
inception (February 17, 1998) through July 31, 1998 and the year ended July
31, 1999, respectively. The number of shares of restricted stock outstanding
at July 31, 1999 was 17,199,312 of which 14,038,812 were subject to repurchase
at their original issuance prices ranging from $.001 to $.33.

Deferred Stock Compensation

In connection with the grant of certain stock options and restricted shares
to employees during the period from inception (February 17, 1998) to July 31,
1998 and the year ended July 31, 1999, the Company recorded deferred stock
compensation of $184,000 and $25,159,000, respectively, representing the
difference between the estimated fair market value of the common stock on the
date of grant and the exercise price. Compensation related to options and
restricted shares which vest over time was recorded as a component of
stockholders' deficit and is being amortized over the vesting periods of the
related options. During the period from inception (February 17, 1998) to July
31, 1998 and the year ended July 31, 1999, the Company recorded compensation
expense relating to these options and restricted shares totaling $5,000 and
$1,409,000, respectively.

F-13
<PAGE>

SYCAMORE NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Non-Employee Stock Compensation

During the year ended July 31, 1999, the Company granted 410,100 shares of
common stock awards which were fully vested by July 31, 1999 to non-employees
and recognized compensation expense of $2,060,000. The fair value of each
stock option was estimated using the Black-Scholes option pricing model with
the following weighted-average assumptions: a weighted-average risk free
interest rates of 5.2%, a weighted-average expected option life of 4 years, no
dividend yield and a 60% volatility.

Valuation of Stock Awards

Had compensation cost of our stock awards been determined in accordance
with the provisions of SFAS No. 123, the historical net loss and net loss per
share would have been increased to the pro forma amounts indicated below (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
Period from Inception
(February 17,1998) to Year Ended
July 31, 1998 July 31, 1999
--------------------- -------------
<S> <C> <C>
As Reported
Net loss.................................. $(693) $(19,490)
Basic and diluted net loss per share...... $(.55) $ (6.27)
Pro forma
Net loss.................................. $(807) $(21,314)
Basic and diluted net loss per share...... $(.65) $ (6.86)
</TABLE>

The fair value of these stock awards at the date of grant was estimated
using the Black-Scholes model with the following assumptions:

<TABLE>
<CAPTION>
Period from Inception
(February 17, 1998) Year Ended
to July 31, 1998 July 31, 1999
--------------------- -------------
<S> <C> <C>
Risk free interest rate..................... 5.4% 4.5%
Dividend yield.............................. 0% 0%
Expected volatility......................... 0% 0%
Expected life............................... 4 years 5 years
</TABLE>

The weighted average grant date fair value of the stock award granted
during the period from inception (February 17, 1998) to July 31, 1998 and the
year ended July 31, 1999 was $.16 and $1.06 per share, respectively. The pro
forma effect of applying SFAS No. 123 for prior years is not necessarily
representative of pro forma effect to be expected in future years.

All stock option transactions issued under the 1998 stock incentive plan
are summarized as follows:

<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
---------- ----------------
<S> <C> <C>
Outstanding at July 31, 1998....................... -- --
Options granted.................................... 7,760,100 $ .48
Options exercised.................................. (6,073,800) .67
Options cancelled.................................. -- --
---------- -----
Outstanding at July 31, 1999....................... 1,686,300 $1.36
========== =====
</TABLE>

F-14
<PAGE>

SYCAMORE NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

The following table summarizes information about stock options outstanding
at July 31, 1999:

<TABLE>
<CAPTION>
Vested Options
Options Outstanding Exercisable
--------------------------------------- -------------------------
Range of Number of Weighted Avg. Weighted Avg. Weighted Avg.
Exercise Shares Remaining Exercise Number Exercise
Prices Outstanding Contract Life Price Exercisable Price
-------- ----------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$.12 40,800 9.55 $ .12 30,000 $ .12
.33 584,700 9.82 .33 30,000 .33
1.00 436,899 9.94 1.00 90,000 1.00
2.00 213,501 9.98 2.00 --
3.00 410,400 10.00 3.00 --
--------- -------
$ .12 -
$3.00 1,686,300 9.91 $1.36 150,000 $ .69
</TABLE>

Stockholder Notes Receivable

At July 31, 1999, the Company held notes receivable in the amount of
$360,000 from stockholders in consideration for the purchase of common stock.
The notes are due five years from the date of issuance and are collateralized
by the underlying common stock and, consequently, are reflected as a component
of stockholders' deficit.

Common Stock Purchase Option

In March 1999, the Company signed a definitive Purchase and License
Agreement (the "Agreement') with a customer to provide certain Company
products. Under the terms of the Agreement, the customer also has the right to
purchase shares of the Company in the Company's initial public offering
("IPO") of shares on a national exchange at the IPO price (estimated to be
$18-$20 per share at the time these financial statements are being prepared)
to an upper limit equal to the number of shares, which when multiplied by the
initial public offering price, equals 5% of the dollar value of the customer's
accumulated purchases of the Company's products and services as of the date of
the initial public offering, but in no event more than 5% of the shares
offered in the IPO. The ability of the customer to exercise its right to
purchase such shares is contingent upon a closing of an IPO. Accordingly, the
measurement date for a charge to record this option would be at the closing of
the IPO. The Company does not believe that this option will have any material
value and any charge will be necessary.

7. Redeemable Convertible Preferred Stock

The Company's Board has authorized 15,792,201 shares of Series A, Series B,
Series C and Series D redeemable convertible preferred stock ("Series A,
Series B, Series C, Series D") at $.01 par value of which 15,761,075 are
issued and outstanding at July 31, 1999. Issuances are as follows:

In February 1998, the Company authorized 6,380,000 shares of Series A
preferred stock.

In February 1998 and April 1998, the Company sold 5,500,000 and 549,450
shares, respectively of Series A at a price of $.91 per share and received
proceeds of approximately $5,505,000. In July 1998, the Company issued 137,362
shares of Series A and received proceeds of approximately $125,000 in October
1998.

In October 1998, the Company sold 2,775,000 shares of Series A at a price
of $.91 per share and received proceeds of approximately $2,525,250.

In December 1998, the Company authorized 3,625,000 shares of Series B $.01
par value. In December 1998 and February 1999, the Company sold 3,607,062
shares of Series B at a price of $3.50 per share and received proceeds of
approximately $12,625,000.

In February 1999, the Company authorized 2,500,000 shares of Series C $.01
par value. In March 1999, the Company sold 2,500,000 shares of Series C at a
price of $8.00 per share and received proceeds of approximately $20,000,000.

F-15
<PAGE>

SYCAMORE NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

In July 1999, the Company authorized 692,201 shares of Series D $.01 par
value. In July 1999, the Company sold 692,201 shares of Series D at a price of
$21.67 per share and received proceeds of approximately $15,000,000.

The terms of Series A, Series B, Series C and Series D redeemable
convertible preferred stock are as follows:

Conversion

Each share of Series A, Series B, Series C and Series D may be converted
into three shares of common stock at any time at the option of the holder,
subject to adjustment for certain events such as a stock split, stock
dividend, or stock issuance. At July 31, 1999, Series A, Series B, Series C
and Series D are convertible into 47,283,225 shares of common stock. Upon the
earlier of the closing of an initial public offering of the Company's common
stock at a price which equals or exceeds $9.67 per share and results in
proceeds of a least $10,000,000, or the date on which at least 10,000,000
shares of preferred stock have been converted to common stock, all outstanding
shares of preferred stock automatically convert into shares of common stock.

Dividend and Voting Rights

When and if declared by the Company's Board, dividends on Series A, Series
B, Series C and Series D are payable in cash in preference and prior to any
payment of any dividend on common shares. The holders are entitled to the per
share amount of dividends or distributions declared for common stock,
multiplied by the number of shares of common stock into which the preferred
stock is convertible. The holders are entitled to vote on all matters and are
entitled to the number of votes equal to the number of common shares into
which the Series A, Series B, Series C and Series D, are convertible as of the
date of record.

Liquidation Preference

In the event of any liquidation, dissolution, or winding up of the Company,
the holders of Series A, Series B, Series C and Series D are entitled to
receive, prior and in preference to any payment or distribution of any assets
or surplus funds of the Company to holders of the common shares, an amount for
each share of Series A, Series B, Series C and Series D held, equal to $.91,
$3.50, $8.00 and $21.67, respectively, plus any declared and unpaid dividends.
The liquidation preferences are subject to adjustment in the event of any
stock dividend, stock split, combination or other similar recapitalization.

Redemption

If the holders of at least a majority of Series A, Series B, Series C and
Series D preferred stock, at any time after February 26, 2004, so demand, the
Company will be required to redeem 33% of the shares outstanding, an
additional 50% on February 26, 2005 and all shares remaining on February 26,
2006. The redemption prices of each share of Series A, Series B, Series C and
Series D are $.91, $3.50, $8.00 and $21.67, respectively plus all declared and
unpaid dividends, if any.

F-16
<PAGE>

SYCAMORE NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

The following table sets forth the redeemable convertible preferred stock
activity (in thousands):

<TABLE>
<CAPTION>
Series A Series B Series C Series D Total
------------- -------------- -------------- -------------- --------------
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance--
February
1998 5,500 $5,005 5,500 $ 5,005
Issuance--
April
1998 550 500 550 500
Issuance--
July 1998 137 116 137 116
----- ------ ------ -------
Balance
July 31,
1998 6,187 5,621 6,187 5,621
----- ------ ------ -------
Issuance--
October
1998 2,775 2,525 2,775 2,525
Issuance--
December
1998 3,506 $12,270 3,506 12,270
Issuance--
February
1999 101 355 101 355
Issuance--
March
1999 2,500 $20,000 2,500 20,000
Issuance--
July 1999 692 $15,000 692 15,000
----- ------ ----- ------- ----- ------- --- ------- ------ -------
Balance
July 31,
1999 8,962 $8,146 3,607 $12,625 2,500 $20,000 692 $15,000 15,761 $55,771
----- ------ ----- ------- ----- ------- --- ------- ------ -------
</TABLE>

8. Income Tax

No provision for taxes has been recorded since the Company has incurred
losses since inception.

The components of the net deferred tax asset as of July 31, 1998 and 1999
are as follows (in thousands):

<TABLE>
<CAPTION>
1999 1998
----- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.............................. $ 122 $ 6,163
Capitalized start up costs.................................... 124 98
Research and development credits.............................. 15 515
Other......................................................... 6 63
----- -------
267 6,839
Deferred tax liabilities:
Depreciation.................................................. -- 196
----- -------
Net deferred tax asset........................................ 267 6,643
Valuation allowance........................................... (267) (6,643)
----- -------
Net deferred tax asset........................................ $ -- $ --
===== =======
</TABLE>

At July 31, 1999, the Company has available net operating loss
carryforwards for federal and state tax income purposes of approximately $16.6
million available to offset future taxable income which expire in varying
amounts beginning in 2019 and 2004, respectively. As required by statement of
Financial Accounting Standards No. 109, " Accounting for Income Taxes," the
management of the Company has evaluated the positive and negative evidence
bearing upon the realizability of its deferred tax assets and has established
a full valuation allowance for such assets. which are comprised principally of
net operating loss carryforwards. Management reevaluates the positive and
negative evidence periodically. The net operating loss carryforwards could be
limited in future years if there is a significant change in the Company's
ownership.

9. Employee Benefit Plan:

The Company sponsors a defined contribution plan covering substantially all
of its employees which is designed to be 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 and plan limits. The
Company has made no contributions to the plan to date.

F-17
<PAGE>

SYCAMORE NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

10. Subsequent Events

Proposed Public Offering of Common Stock

In August 1999, the Board authorized the Company to proceed with an initial
public offering of its common stock. If the offering is consummated as
presently anticipated, all of the outstanding redeemable convertible preferred
stock will automatically convert into 47,283,225 shares of common stock.

In August 1999, the Board authorized, subject to stockholder approval, an
increase in the authorized shares of the Company's common stock from
91,000,000 to 250,000,000 shares and authorized and approved 5,000,000 shares
of $.01 par value undesignated preferred stock that may be issued by the Board
from time to time in one or more series. This amendment is to be effective
upon the closing of the Company's IPO.

In August 1999, the Company approved a 3-for-1 stock split in the form of a
200% stock dividend of the Company's issued and outstanding common stock and
stock options payable to stockholders of record on August 27, 1999. The
redeemable convertible preferred stock conversion ratio is automatically
adjusted to reflect the split. Additionally, the authorized common stock of
the Company was increased from 32,000,000 to 91,000,000. All common shares,
common options and per share amounts in the accompanying financial statements
have been adjusted to reflect the stock split.

1999 Stock Incentive Plan

In August 1999, the Board approved, subject to stockholder approval, the
1999 Stock Incentive Plan. The 1999 plan provides for the grant of incentive
stock options, nonstatutory stock options, restricted stock awards and other
stock-based awards to officers, employees, directors, consultants and advisors
of the Company. Shares not yet issued under the 1998 Stock Incentive Plan will
now be available under the 1999 plan. The total amount of shares that may be
issued under the 1999 plan is the remaining shares to be issued under the 1998
Stock Incentive Plan plus an annual increase beginning August 1, 2000 of the
lesser of 3,000,000 or 5% of the outstanding shares on that date.

1999 Employee Stock Purchase Plan

In August 1999, the Board approved, subject to stockholder approval, the
Employee Stock Purchase Plan. A total of 750,000 shares of common stock have
been reserved for issuance under this plan. Eligible employees may purchase
common stock at a price equal to 85% of the lower of the fair market value of
the common stock at the beginning or end of each six-month offering period.
Participation is limited to 10% of an employee's eligible compensation not to
exceed amounts allowed by the Internal Revenue Code. On August 1 of each year,
commencing with August 1, 2000, the aggregate number of common shares
available for purchase during the life of the Employee Stock Purchase Plan
shall automatically be increased by the number of common shares necessary to
cause the number of common shares available for purchase to be 750,000.

1999 Non-Employee Director Option Plan

In August 1999, the Board approved, subject to stockholder approval, the
1999 Non-Employee Director Option Plan. A total of 500,000 shares of common
stock have been reserved for issuance under this plan. As of August 1 of each
year, commencing with August 1, 2000, the aggregate number of common shares
available for the grant of options under this plan shall automatically be
increased by the number of common shares necessary to cause the total number
of common shares available for grant to be 500,000.

F-18
<PAGE>

Inside back cover shows Sycamore logo.
<PAGE>

Back cover shows drawing of tree with written script: One Sycamore stands alone.