<PAGE>
As filed with the Securities and Exchange Commission on August 6, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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SYCAMORE NETWORKS, INC.
(Exact name of registrant as specified in its charter)
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Delaware 3576 04-3410558
(State of other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
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10 Elizabeth Drive
Chelmsford, MA 01824
(978) 250-2900
(Address Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
---------------
Daniel E. Smith
President and Chief Executive Officer
Sycamore Networks, Inc.
10 Elizabeth Drive
Chelmsford, MA 01824
(978) 250-2900
(Name, Address Including Zip Code and Telephone
Number, Including Area Code, of Agent for Service)
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Copies to:
MARK G. BORDEN, ESQ. MICHAEL D. HOCHBERG, WILLIAM B. ASHER, JR.,
JEFFREY A. STEIN, ESQ. ESQ. ESQ.
HALE AND DORR LLP GENERAL COUNSEL TESTA, HURWITZ &
60 State Street SYCAMORE NETWORKS, INC. THIBEAULT, LLP
Boston, MA 02109 10 Elizabeth Drive 125 High Street
Telephone: (617) 526- Chelmsford, MA 01824 Boston, MA 02110
6000 Telephone: (978) 250- Telephone: (617) 248-
Telecopy: (617) 526-5000 2900 7000
Telecopy: (978) 256- Telecopy: (617) 248-7100
3434
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date hereof.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Title of each class of Proposed Maximum Amount of
securities to be registered Aggregate Offering Price(1) Registration Fee(2)
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<S> <C> <C>
Common Stock, $.001 par value
per share.................... $115,000,000 $31,970
</TABLE>
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(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933,
as amended.
(2) Calculated pursuant to Rule 457(a) based on an estimate of the proposed
maximum aggregate offering price.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued , 1999
Shares
COMMON STOCK
-----------
Sycamore Networks, Inc. is offering shares of its common stock. This is our
initial public offering and no public market currently exists for our shares.
We anticipate that the initial public offering price will be between $ and
$ per share.
-----------
We have applied to list our common stock on the Nasdaq National Market under
the symbol "SCMR."
-----------
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 6.
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PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Sycamore
-------- ------------- -----------
<S> <C> <C> <C>
Per Share................................. $ $ $
Total..................................... $ $ $
</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.
Sycamore Networks, Inc. has granted the underwriters the right to purchase up
to an additional shares of common stock to cover over-allotments. Morgan
Stanley & Co. Incorporated expects to deliver the shares to purchasers on
, 1999.
-----------
MORGAN STANLEY DEAN WITTER
LEHMAN BROTHERS
J.P. MORGAN & CO.
DAIN RAUSCHER WESSELS
a division of Dain Rauscher Incorporated
, 1999
<PAGE>
[gatefold artwork]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 4
Risk Factors........................ 6
Special Note Regarding Forward-
Looking Statements................. 16
Use of Proceeds..................... 17
Dividend Policy..................... 17
Capitalization...................... 18
Dilution............................ 19
Selected Financial Data............. 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 21
</TABLE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Business......................... 26
Management....................... 36
Certain Transactions............. 43
Principal Stockholders........... 45
Description of Capital Stock..... 46
Shares Eligible for Future Sale.. 49
Underwriters..................... 51
Legal Matters.................... 53
Experts.......................... 53
Where You Can Find More
Information..................... 53
Index to Financial Statements.... F-1
</TABLE>
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.
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.
Until , 1999 (25 days after the date of this prospectus), 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.
Except as set forth in the financial statements or as otherwise indicated,
all information in this prospectus:
. assumes no exercise of the underwriters' over-allotment option;
. reflects the conversion of all outstanding shares of our redeemable
convertible preferred stock into 15,761,075 shares of common stock upon
the closing of the offering; 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."
Sycamore's fiscal year ends on July 31 of the referenced year. For example,
references to the "1999 fiscal year" mean the fiscal year ending on July 31,
1999.
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 software-based optical networking products that enable
network service providers to quickly and cost effectively provide bandwidth and
create new high speed data services. Our target customers are competitive local
exchange carriers, incumbent local exchange carriers, long distance carriers,
Internet service providers, cable operators, foreign telephone companies and
wholesale carriers, all of which we refer to as "service providers". 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 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 wave lengths of light,
"wavelengths", 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 domain. In contrast, the existing SONET/SDH
architecture 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.
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 scalability of 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
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RECENT DEVELOPMENTS
We began shipping our SN 6000 Intelligent Optical Transport product to one
customer in the fourth quarter of fiscal 1999. Our initial customer for this
product is Williams Communications, Inc. We expect to recognize revenue of
approximately $11.3 million in the fourth quarter of fiscal 1999 in connection
with these shipments.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered............ shares
Common stock to be outstanding shares
after this offering.............
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."
Proposed Nasdaq National Market "SCMR"
symbol..........................
</TABLE>
The above information is based upon the number of shares of common stock
outstanding as of June 30, 1999 and excludes 1,837,700 shares of common stock
issuable upon exercise of outstanding options at an average exercise price of
$.81 per share and 6,381,300 shares of common stock reserved for issuance under
our stock plan as of June 30, 1999.
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
Period from inception
(February 17, 1998) Nine months ended
through July 31, 1998 May 1, 1999
--------------------- -----------------
Statement of Operations Data:
<S> <C> <C>
Revenue................................ $ -- $ --
Total operating expenses............... 793 10,591
Loss from operations................... (793) (10,591)
Net loss............................... (693) (10,103)
Pro forma basic and diluted net loss
per share (unaudited)................. $(.11) $ (1.08)
Weighted average shares used in comput-
ing pro forma basic and diluted net
loss per share (unaudited)............ 6,252 9,351
</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 1,752,000 and 4,230,000 for the period from
inception (February 17, 1998) through July 31, 1998 and the nine months ended
May 1, 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 and the sale of the
shares of common stock in this offering at an assumed initial public
offering price of $ , after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us.
<TABLE>
<CAPTION>
As of May 1, 1999
----------------------
Pro forma
Actual as adjusted
--------- -----------
<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and marketable securities......... $ 26,337 $
Working capital.......................................... 26,726
Total assets............................................. 37,502
Long-term obligations, less current portion.............. 666
Redeemable convertible preferred stock................... 40,771
Total stockholders' equity (deficit)..................... $ (10,113) $
</TABLE>
5
<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. If any of the following risks actually occur,
our business, financial condition or results of operations would likely
suffer. In such case, the trading price of our common stock could fall, and
you may lose all or part of the money you paid 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
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 these customers to purchase products from us for
any reason, including any downturn in the business of these customers, would
seriously harm our business, results of operations and financial condition.
Our Business Is Difficult To Evaluate Because We Have A Limited Operating
History
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 May 1, 1999, we had an accumulated
deficit of $10.8 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 is the only product that has been shipped to a
6
<PAGE>
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 and our business, results of operations and financial
condition will be seriously harmed.
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 is the only
product that has been shipped to a customer, and that customer is currently
using our product 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 Depend On The Growth Of Our Customer Base
Our future success will depend on the growth of our customer base. The
growth of our customer base could be adversely affected by:
. customer unwillingness to implement our new optical networking
architecture;
7
<PAGE>
. 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.
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.
Our Business Will Suffer If We Do Not Respond Rapidly To Technological
Changes
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, which would materially adversely affect our business,
results of operations and financial condition.
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 seriously harm our
business and operating results.
Our Business Will Suffer If Our Products 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 business, results of
operations and financial condition.
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 materially adversely
affect our business, results of operations and financial condition.
8
<PAGE>
We Face Intense Competition
Competition in the public network infrastructure market is intense. This
market has historically been dominated by large companies, such as Ciena
Corporation, 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 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.
Our Business Will Suffer 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
9
<PAGE>
expand our customer service and support organization and train them rapidly,
we may not be able to increase sales of our products, which would seriously
harm our business.
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 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, which
would, in turn, seriously harm our business.
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;
10
<PAGE>
. 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.
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.
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 Have A Material
Adverse Effect On Us
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, which, if they were successful, could have a material adverse effect
on our business, results of operations and financial condition. A product
liability claim brought against us, even if unsuccessful, would likely be time
consuming and costly.
11
<PAGE>
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.
Our Business Will Suffer If We Fail To Properly Manage Our 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 July 31, 1999, we had a total of 148 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, reporting systems and procedures, 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. We may fail to attract, assimilate or retain qualified personnel
to fulfill our current or future needs. Our planned rapid growth places a
significant demand on management and financial and operational resources. In
order to grow and achieve future success, we must:
. retain existing personnel;
. hire, train, manage and retain additional qualified personnel;
. effectively manage multiple relationships with our customers, suppliers
and other third parties; and
. implement adequate operational controls, reporting systems and
procedures.
Failure to do so would have a materially adverse effect on our business,
results of operations and financial condition.
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.
12
<PAGE>
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 Business Will Be Adversely Affected 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 Necessary Licenses Of Third-Party Technology Are Not Available To Us Or
Are Very Expensive Our Business Will Be Seriously Harmed
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 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 our business, results of operations
and financial condition.
We Could Become Subject To Litigation Regarding Intellectual Property
Rights Which Could Seriously Harm Our Business
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
Seriously Harm Our Financial Condition And Results Of Operations
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.
13
<PAGE>
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
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 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.
14
<PAGE>
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;
. 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.
15
<PAGE>
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, which would materially adversely
affect our business, financial condition and results of operations.
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
% of our outstanding common stock following the completion of this
offering. These stockholders, if acting together, would be able to influence
significantly all matters requiring approval by our stockholders, including
the election of directors and the approval of mergers or other business
combination transactions.
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.
16
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the shares of common
stock will be approximately $ assuming an initial public offering price of
$ per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by us. If the over-
allotment option is exercised in full, we estimate that such net proceeds will
be approximately $ .
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. These 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 1.5% 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 1.5% 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.
17
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of May 1, 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 shares of common stock offered by
us in this offering at an assumed initial public offering price of $ per
share and the application of the estimated net proceeds we expect to receive
from this offering. The outstanding share information excludes: (1) 1,019,000
shares of common stock issuable upon exercise of outstanding options as of May
1, 1999, and (2) 1,487,500 shares of common stock reserved for future issuance
under our 1998 Stock Incentive Plan as of May 1, 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 May 1, 1999
------------------------------
Pro Pro forma
Actual forma as adjusted
-------- ------- -----------
(in thousands, except share
data)
(unaudited)
<S> <C> <C> <C>
Long-term debt, less current portion........... $ 666 $ 666 $
-------- ------- ---
Redeemable convertible preferred stock, $.01
par value; 15,100,000 authorized, 15,068,874
issued and outstanding, actual; no shares
issued and outstanding, pro forma and pro
forma as adjusted............................. 40,771 --
-------- ------- ---
Stockholders' equity (deficit):
Common stock, $.001 par value; 25,000,000
shares authorized, 5,444,104 shares issued and
outstanding, actual; 20,512,978 shares issued
and outstanding, on a pro forma basis;
shares issued and
outstanding, on a pro forma as adjusted
basis......................................... 5 20
Additional paid-in capital..................... 5,482 46,238
Accumulated deficit............................ (10,796) (10,796)
Note receivable................................ (17) (17)
Deferred compensation.......................... (4,787) (4,787)
-------- ------- ---
Total stockholders' equity (deficit)......... (10,113) 30,658
-------- ------- ---
Total capitalization....................... $ 31,324 $31,324 $
======== ======= ===
</TABLE>
18
<PAGE>
DILUTION
Sycamore's pro forma net tangible book value as of May 1, 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 $30.7 million, or $1.49 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 20,512,978 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 an assumed initial public offering price of $ 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 May 1, 1999 would have
been $ , or $ per share. This represents an immediate increase in pro
forma net tangible book value to existing stockholders of $ per share and
an immediate dilution to new investors of $ per share. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share $
Pro forma net tangible book value per share before this offering... $
Increase in pro forma net tangible book value per share
attributable to new investors.....................................
----
Pro forma net tangible book value per share after this offering......
----
Dilution per share to new investors.................................. $
====
</TABLE>
The following table 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 May 1, 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 an assumed
initial public offering price of $ per share before deduction of estimated
underwriting discounts and commissions and estimated offering expenses payable
by Sycamore):
<TABLE>
<CAPTION>
Shares Total Average
Purchased Consideration Price
-------------- -------------- Per
Number Percent Amount Percent Share
------ ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... % $ % $
New investors.............................
--- ----- ---- -----
Total................................... 100.0% $ 100.0%
===== =====
</TABLE>
The table above assumes no exercise of stock options outstanding at May 1,
1999. As of May 1, 1999, there were options outstanding to purchase 1,019,000
shares of common stock at a weighted average exercise price of $.66 per share
and 1,487,500 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 May 1, 1999, net tangible book value per
share after this offering would be $ and total dilution per share to new
investors would be $ . If the underwriters' over-allotment option is
exercised in full, the number of shares held by new investors will increase to
shares, or % of the total number of shares of common stock outstanding
after this offering.
19
<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 balance sheet data as of July 31, 1998 are derived from the
financial statements of Sycamore audited by PricewaterhouseCoopers LLP,
independent accountants, which are included elsewhere in this prospectus. The
selected financial data as of May 1, 1999 and for the interim period ended May
1, 1999 are unaudited and, in the opinion of management, have been prepared on
the same basis as the audited financials and include all adjustments,
consisting only of normal, recurring adjustments, that Sycamore considers
necessary for a fair presentation of the financial position and the results of
operations for those periods. Operating results for the nine-month period
ended May 1, 1999 are not necessarily indicative of the results that may be
expected for any future period.
<TABLE>
<CAPTION>
Period from
inception
(February 17, Nine months
1998) through ended
July 31, 1998 May 1, 1999
------------- -----------
(in thousands, except per
share data)
<S> <C> <C>
Statement of Operations Data:
Revenue............................................. $ -- $ --
Operating expenses:
Manufacturing..................................... -- 1,173
Research and development.......................... 497 6,572
Sales and marketing............................... 92 1,598
General and administrative........................ 199 752
Amortization of stock compensation................ 5 496
------ --------
Total operating expenses........................ 793 10,591
------ --------
Loss from operations................................ (793) (10,591)
Interest income..................................... 100 488
------ --------
Net loss............................................ $ (693) $(10,103)
====== ========
Basic and diluted net loss per share(1)............. $(1.66) $ (15.66)
Weighted average shares used in computing basic and
diluted net loss per share......................... 417 645
Pro forma basic and diluted net loss per share
(unaudited)........................................ $ (.11) $ (1.08)
Weighted average shares used in computing pro forma
basic and diluted
net loss per share(2) (unaudited).................. 6,252 9,351
<CAPTION>
As of As of
July 31, 1998 May 1, 1999
------------- -----------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and marketable securities.... $4,279 $ 26,337
Working capital..................................... 4,341 26,726
Long term debt, less current portion................ -- 666
Redeemable convertible preferred stock.............. 5,621 40,771
Total stockholders' deficit......................... (678) (10,113)
</TABLE>
- --------
(1) 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.
(2) 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.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We develop and market software-based intelligent optical networking
products that allow service providers to address customer requirements for
high-speed data services and bandwidth. From our inception in February 1998
through May 1, 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.
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 May 1,
1999, we had an accumulated deficit of $10.8 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 our product sales upon execution of
a contract and the completion of all delivery obligations provided that there
are no uncertainties regarding customer acceptance and collectibility is
deemed probable. If uncertainties exist, revenue is recognized when such
uncertainties are resolved. Our policy is to recognize revenue from our
technical support and maintenance contracts ratably over the period of the
related agreements. We record a warranty liability for parts and labor on our
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
conducted 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 and prototype costs related to the design, development,
testing and enhancement of our products. We have to date 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 related
personnel costs of sales and marketing personnel, commissions, promotional and
other marketing expenses and recruiting expenses. We
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expect that sales and marketing expenses will increase substantially 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, accounting, 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 (February 17,
1998) through July 31, 1998 and the nine-month period ended May 1, 1999, we
recorded deferred stock compensation expense of $184,000 and $4.9 million,
respectively. Stock based compensation includes primarily the amortization of
stock compensation 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. We
amortized $5,000 of deferred stock compensation during the period from
inception (February 17, 1998) through July 31, 1998, and $261,000 of deferred
stock compensation during the nine months ended May 1, 1999.
Results of Operations
Period from inception (February 17, 1998) through July 31, 1998 (fiscal 1998)
and the nine months ended May 1, 1999
Manufacturing Expenses. Manufacturing expenses were zero for the period
from inception (February 17, 1998) to July 31, 1998 and $1.2 million for the
nine months ended May 1, 1999. Manufacturing expenses represented 11% of total
operating expenses for the nine months ended May 1, 1999. The increase in
manufacturing expenses was due to the commencement of manufacturing.
Research and Development Expenses. Research and development expenses were
$497,000 for the period from inception (February 17, 1998) to July 31, 1998
and represented 63% of total operating expenses in fiscal 1998. Research and
development expenses for the nine months ended May 1, 1999 were $6.6 million
and represented 62% of total operating expenses for the nine months ended May
1, 1999. The period-to-period increases were 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 development of the SN 6000, SN 8000 and SN 16000
products. Development is essential to our future success and we expect that
research and development expenses will increase in absolute dollars in future
periods.
Sales and Marketing Expenses. Sales and marketing expenses were $92,000 for
the period from inception (February 17, 1998) to July 31, 1998 and represented
12% of total operating expenses in fiscal 1998. Sales and marketing expenses
for the nine months ended May 1, 1999 were $1.6 million and represented 15% of
total operating expenses for the period. The period-to-period increases
reflect the hiring of additional sales and marketing personnel and marketing
program costs, including web development, trade shows and product launch
activities.
General and Administrative Expenses. General and administrative expenses
were $199,000 for the period from inception (February 17, 1998) to July 31,
1998 and represented 25% of total operating expenses in fiscal 1998. General
and administrative expenses for the nine months ended May 1, 1999 were
$752,000 and represented 7% of total operating expenses for the period. The
period-to-period increases reflect the hiring of additional general and
administrative personnel and expenses necessary to support and scale our
operations.
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Amortization of Stock Compensation. Amortization of stock compensation
expense were $5,000 and $496,000 for the period from inception (February 17,
1998) through July 31, 1998 and the nine months ended May 1, 1999,
respectively. Amortization of stock compensation expense for the nine months
ended May 1, 1999 consisted of $261,000 for the amortization of deferred stock
compensation expense resulting 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, and $235,000 of compensation
expense associated with the grant of options to non-employees. The period to
period increase was due to an increase in the number of options granted to our
employees at exercise prices deemed to be below the fair value of our common
stock and the issuance of options to non-employees.
Interest Income. Interest income was $100,000 and $488,000 for the period
from inception (February 17, 1998) through July 31, 1998 and the nine months
ended May 1, 1999, respectively. Interest income consists of interest earned
on our cash balances and marketable securities and increased due to higher
invested balances.
Net Operating Losses and Tax Credit Carryforwards. As of July 31, 1998, we
had approximately $330,000 of state and federal net operating loss
carryforwards for tax reporting purposes available to offset future taxable
income. Such net operating loss carryforwards 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.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private
sales of our capital stock totaling approximately $40.8 million in net
proceeds through May 1, 1999. We have also financed our operations through
borrowings on long-term debt agreements for the purchase of capital equipment.
At May 1, 1999, cash, cash equivalents and marketable securities totaled $26.3
million.
Cash used in operating activities was $598,000 for fiscal 1998 and $10.0
million for the nine months ended May 1, 1999. Net cash flows from operating
activities in each period reflect increasing net losses and to a lesser extent
inventory purchases offset in part by increased accounts payable and accrued
expenses.
Cash used in investing activities was $3.7 million for fiscal 1998 and $3.2
million for the nine months ended May 1, 1999. Net cash used for investing
activities in each period reflect increasing purchases of property and
equipment, primarily computers and test equipment for our development and
manufacturing activities. 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
$35.4 million for the nine months ended May 1, 1999. Cash provided by
financing activities for these periods was derived primarily from private
sales of redeemable convertible preferred stock. At July 31, 1998, a $100,000
certificate of deposit was being utilized to collateralize a standby letter of
credit for a facility lease. No claims have been presented against the letter
of credit. At May 1, 1999, a $92,000 United States treasury bill was being
utilized to collateralize a standby letter of credit for a facility lease. We
have two equipment lines of credit aggregating $1.0 million and $5.0 million,
respectively. These lines of credit are collateralized by all of our assets
and bear interest at the bank's prime rate plus 1.5% per annum. At May 1,
1999, an aggregate of approximately $1.0 million was outstanding under these
lines of credit.
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 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
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through the issuance of debt securities, these 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 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 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-compliant 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 compliant 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 September 30, 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.
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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. We do not expect the adoption
of this standard to have a material effect on our financial condition or
results 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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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 RHK, 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 RHK, 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.
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;
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. 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.
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
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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. 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
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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 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
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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 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.
30
<PAGE>
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 In test stage
Optical Distance)
------------------------------------------------------
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 Field test at
Management services customer's site
Software
- -------------------------------------------------------------------------------------
SilvxManager Network Provides end-to-end management of In test stage
Management wave services
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.
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.
31
<PAGE>
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 competitive local exchange carriers,
incumbent local exchange carriers, long distance carriers, Internet service
providers, cable operators, PTTs (foreign telephone companies) and wholesale
carriers. At July 31, 1999, we had shipped product to one customer, Williams
Communications, Inc. Williams Communications is a leading US-based wholesale
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 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.
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 $6.6 million for the nine
months ended May 1, 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. See
"Risk Factors-- If Necessary Licenses Of Third-Party Technology Are Not
Available To Us Or Are Very Expensive Our Business Will Be Seriously Harmed."
32
<PAGE>
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 optical network
equipment, such as Ciena Corporation, 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.
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. See
"Risk Factors--We Face Intense Competition."
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 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
33
<PAGE>
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. See "Risk
Factors--We Could Become Subject To Litigation Regarding Intellectual Property
Rights Which Could Seriously Harm Our Business."
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,
. 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.
34
<PAGE>
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.
35
<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
Jeffrey A. Kiel......... 34 Vice President, Product Marketing
Anita Brearton.......... 40 Vice President, Corporate Marketing
Timothy Barrows (1)(2).. 42 Director
Paul J. Ferri (1)(2).... 60 Director
Other Key Employees:
Richard A. Barry........ 33 Chief Technical Officer
Eric A. Swanson......... 38 Chief Scientist
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
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 July 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.
Chikong Shue has served as our Vice President of Engineering since August
1998. From March 1997 to July 1998, Mr. Shue was Vice President of Software
and Systems Engineering of the Core Switching Division
36
<PAGE>
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.
Jeffrey 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.
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.
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.
37
<PAGE>
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. and will serve in the class whose term expires in
2000; Messrs. and will serve in the class
whose term expires in 2001; and Mr. will serve in the
class whose term expires 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.
38
<PAGE>
Executive Compensation
The table below sets forth, for the fiscal year ended July 31, 1999, the
cash compensation earned by (1) our Chairman of the Board, (2) our Chief
Executive Officer and (3) 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 (#) ($)
------- ------ ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
Gururaj Deshpande
Chairman and Founder... 100,000 -- -- -- --
Daniel E. Smith
President and Chief
Executive Officer ..... 73,077(1) -- -- -- --
Ryker Young
Vice President, Sales.. 117,788 49,998(2) -- 20,000 9,326(3)
</TABLE>
- --------
(1) Represents the total amount of compensation Mr. Smith received in fiscal
1999 for the portion of the year during which he was one of our executive
officers. Mr. Smith joined us in October 1998.
(2) Represents advance commission income.
(3) Represents reimbursement for relocation expenses.
Stock Options
The following table contains information concerning the grant of options to
purchase shares of our common stock to each of the Named Executive Officers
during the fiscal year ended July 31, 1999:
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed
Percent of Annual Rates of
Number of Total Options Stock
Securities Granted To Appreciation for
Underlying Employees in Exercise Option Term(3)
Options Fiscal Price Expiration -----------------
Granted Year(1) ($/Share)(2) Date 5% 10%
---------- ------------- ------------ ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gururaj Deshpande....... -- -- -- -- -- --
Daniel E. Smith......... -- -- -- -- -- --
Ryker Young............. 20,000(4) .81% $1.00 June 16, 2009 12, 578 31,875
</TABLE>
- --------
(1) Based on options to purchase an aggregate of 2,484,000 shares granted to
Sycamore employees in fiscal 1999.
(2) All options were granted at fair market value as determined by the board
of directors on the date of grant.
39
<PAGE>
(3) 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.
(4) 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>
Shares Number of Securities Value of Unexercised
Acquired Underlying Unexercised In-The-Money Options at
on Value Options at July 31, 1999 July 31, 1999 ($)
Exercise Realized ------------------------- -------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gururaj Deshpande....... -- -- -- -- -- --
Daniel E. Smith......... -- -- -- -- -- --
Ryker Young............. 20,000(1) 40,000(2) -- -- -- --
</TABLE>
- --------
(1) These 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.
(2) Calculated on the basis of the fair market value of our common stock as of
the date of exercise, of $3.00 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
August , 1999. The 1999 plan authorizes the issuance of up to
shares of our common stock.
The 1999 plan provides for the grant of incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code, nonstatutory 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.
40
<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 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, liquidation or other acquisition event, our board
of directors is authorized to provide for outstanding options or other stock-
based awards to be assumed or substituted for by the acquiror. If the acquiror
refuses to assume or substitute for outstanding awards, they will accelerate,
becoming fully exercisable and free of restrictions, prior to consummation of
the acquisition event. In addition, following an acquisition event, under
certain circumstances, an assumed or substituted award will accelerate if the
employment of its holder with the acquiror is terminated within one year of
the acquisition event.
No award may be granted under the 1999 plan after 2009, 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 August , 1999. The purchase plan authorizes the
issuance of up to a total of shares of our common stock to
participating employees.
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,
. who have been employed by us for at least three months prior to
enrolling, and
. who are employed on the first day of a designated payroll deduction
offering period
41
<PAGE>
are eligible to participate in the purchase plan. Employees who would
immediately after the grant own five percent or more of the total combined
voting power or value of our stock or any subsidiary are not eligible to
participate. As of July 31, 1999, approximately 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 date on which trading of our
common stock commences on the Nasdaq National Market, with the option price on
the first day of such offering period equivalent to 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) $2,083 and (2) the number of full months in the
offering period by 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.
The Compensation Committee may, in its discretion, choose an offering period
of 12 months or less for each offering and may choose a different offering
period for each offering.
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 other 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 and received stockholder
approval in August , 1999. The option plan authorizes the issuance of up to
a total of shares of our common stock to participating directors who
are not also an employee or officer.
On the day each of our directors who is not also an employee or officer is
elected to our board of directors, we will grant to him a nonqualified stock
option to purchase shares of common stock. In addition, on the date of
each annual meeting of stockholders, we will grant each such director a
nonqualified stock option to purchase shares of our common stock
beginning with the 2000 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 vest immediately, but may not be exercised until . The term
of each option is years from the date of grant. In addition, the
Compensation Committee may grant additional options to non-employee directors
and determine the terms applicable to such options. 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.
42
<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. 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 19, 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 145,000 shares of common stock for $1.00 per share
and Kurt Trampedach, our Vice President of International Sales, purchased an
aggregate of 125,000 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.
43
<PAGE>
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.
44
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of June 30, 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 20,820,478 shares of common stock outstanding as of June 30,
1999. The number of shares of common stock deemed outstanding after this
offering includes the 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 June 30, 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)......................... 5,445,623 26.2
Daniel E. Smith.............................. 4,901,061 23.5
Matrix V Management Co., L.L.C.(2)
1000 Winter Street, Suite 4500
Waltham, MA 02154........................... 4,195,623 20.2
Ryker Young.................................. 340,604(3) 1.6
Timothy Barrows(2)
c/o Matrix V Management Co., L.L.C.
1000 Winter Street, Suite 4500
Waltham, MA 02154........................... 4,195,623 20.2
Paul J. Ferri(2)
c/o Matrix V Management Co., L.L.C.
1000 Winter Street, Suite 4500
Waltham, MA 02154........................... 4,195,623 20.2
Jaishree Deshpande, as Trustee of the Gururaj
Deshpande Grantor Retained Annuity Trust.... 2,000,000 9.6
All executive officers and directors as a
group (10 persons).......................... 16,557,045(4) 79.0
</TABLE>
- --------
* Less than 1% of the outstanding common stock.
(1) Includes 437,500 shares held by the Deshpande Irrevocable Trust and
2,000,000 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 3,776,060 shares held by Matrix Partners V, L.P. and 419,563
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) Includes immediately exercisable options to purchase 20,000 shares.
(4) Includes immediately exercisable options to purchase 265,000 shares.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
After this offering, the authorized capital stock of Sycamore will consist
of shares of common stock, $.001 par value per share, and
5,000,000 shares of preferred stock, $.01 par value per share. As of June 30,
1999, there were outstanding (1) 20,820,478 shares of common stock held by 67
stockholders of record, assuming the conversion into common stock of all
outstanding shares of convertible preferred stock, and (2) options to purchase
an aggregate of 1,837,700 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
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 outstanding
shares of common stock are, and the shares offered by Sycamore in this
offering will be, when issued and paid for, fully paid and nonassessable. 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
46
<PAGE>
person 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.
47
<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 .
48
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have shares of common
stock outstanding (assuming no exercise of outstanding options). Of these
shares, the 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.
Sales of Restricted Shares
<TABLE>
<CAPTION>
Days After Date of Approximate Shares
This Prospectus Eligible for Future Sale Comment
------------------ ------------------------ -------
<S> <C> <C>
On effectiveness.... Freely tradeable sold in offering
90 days after
effectiveness...... Shares salable under Rule 144
days after Shares salable under
effectiveness...... Rule 144, 144(k) or 701
</TABLE>
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 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 (1)
by persons, other than affiliates, subject only to the manner of sale
provisions of Rule 144, and (2) by affiliates under Rule 144 without
compliance with its one-year minimum holding period, subject to certain
limitations.
Stock Options
At July 31, 1999, approximately shares of common stock were
issuable pursuant to immediately exercisable options or pursuant to other
rights granted under our 1998 Stock Incentive Plan of which approximately
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 shares of common stock issuable under our stock plans, including
the shares of common stock subject to outstanding options as of July 31,
1999. This registration statement is expected to become effective upon filing.
49
<PAGE>
Lock-up Agreements
Subject to certain exceptions, Sycamore and its executive officers,
directors and other security holders have agreed that, without the prior
written consent of Morgan Stanley & Co. Incorporated, they will not, during
the period ending days after the date of this prospectus, (1) 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 (regardless of whether such shares or any
such securities are then owned by such person or are thereafter acquired), or
(2) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the common
stock, regardless of whether any such transactions described in clauses (1) or
(2) of this paragraph are to be settled by delivery of such common stock or
such other securities, in cash or otherwise. In addition, for a period of
days from the date of this prospectus, except as required by law, we have
agreed that our board of directors will not consent to any offer for sale,
sale or other disposition, or any transaction which is designed or could be
expected, to result in, the disposition by any person, directly or indirectly,
of any shares of common stock without the prior written consent of Morgan
Stanley & Co. Incorporated. See "Underwriters."
Registration Rights
After this offering, the holders of approximately 19,266,000 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.
50
<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 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.............................
Lehman Brothers Inc...........................................
J. P. Morgan Securities Inc...................................
Dain Rauscher Wessels.........................................
-----------
Total.......................................................
===========
</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 $ a share under the initial public offering
price. Any underwriters may allow, and such dealers may reallow, a concession
not in excess of $ 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.
Pursuant to the underwriting agreement, we have granted to the underwriters
an option, exercisable for 30 days from the date of this prospectus, to
purchase up to an aggregate of additional shares of common stock at
the initial public offering price set forth on the cover page hereof, less
underwriting discounts and commissions. The underwriters may exercise such
option solely for the purpose of covering over-allotments, if any, made in
connection with the offering of the shares of common stock offered hereby. To
the extent such option is exercised, each underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage
of such additional shares of common stock as the number set forth next to such
underwriter's name in the preceding table bears to the total number of shares
of common stock set forth next to the names of all underwriters in the
preceding table. If the underwriter's over-allotment option is exercised in
full, the total price to public would be $ , the total underwriters'
discounts and commissions would be $ , and the total proceeds to us
would be $ before deducting estimated offering expenses of $ .
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<PAGE>
At our request, the underwriters have reserved up to 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 and
related persons. The number of shares of common stock available for sale to
the general public will be reduced to the extent these individuals 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.
Sycamore, our directors, officers and certain other of our stockholders
have each agreed that, without the prior written consent of Morgan Stanley &
Co. Incorporated on behalf of the underwriters, during the period ending
days after the date of this prospectus, we will not, 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.
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
We have filed an application for our common stock to be quoted on the
Nasdaq National Market under the symbol "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 will be determined by negotiations between Sycamore and the
representatives of the underwriters. Among the factors to be considered in
determining the public offering price will be our record of operations, our
current financial position and future prospects, the experience of our
management, sales, earnings and certain of our other financial and operating
information in recent periods, the
52
<PAGE>
price-earnings ratios, price-sales ratios, market prices of securities and
certain financial and operating information of companies engaged in activities
similar to ours. The estimated public offering price range set forth on the
cover page of this preliminary prospectus is subject to change as a result of
market conditions and other factors.
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 for the period from
inception (February 17, 1998) through July 31, 1998 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.
53
<PAGE>
SYCAMORE NETWORKS, INC.
(A Development Stage Enterprise)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants......................................... F-2
Balance Sheets at July 31, 1998 and May 1, 1999 (unaudited)............... F-3
Statements of Operations for the period from inception (February 17, 1998)
through July 31, 1998, the nine months ended May 1, 1999 (unaudited) and
the period from inception (February 17, 1998) through May 1, 1999
(unaudited).............................................................. F-4
Statements of Stockholders' Deficit for the period from inception
(February 17, 1998) through July 31, 1998, the nine months ended May 1,
1999 (unaudited) and the period from inception (February 17, 1998)
through May 1, 1999 (unaudited).......................................... F-5
Statements of Cash Flows the period from inception (February 17, 1998)
through July 31, 1998, the nine months ended May 1, 1999 (unaudited) and
the period from inception (February 17, 1998) through May 1, 1999
(unaudited).............................................................. F-6
</TABLE>
<TABLE>
<S> <C>
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 sheet and the related statements
of operations, stockholders' deficit and cash flows present fairly, in all
material respects, the financial position of Sycamore Networks, Inc. (a
development stage enterprise) at July 31, 1998 and the results of its
operations and its cash flows for the period from inception (February 17,
1998) to July 31, 1998 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 audit. We conducted our audit 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 audit provides a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 29, 1999
F-2
<PAGE>
SYCAMORE NETWORKS, INC.
(A Development Stage Enterprise)
BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
Pro Forma
July 31, May 1, 1999 May 1, 1999
1998 (Unaudited) (Unaudited)
-------- ----------- -----------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................... $1,197 $ 23,406 $ 23,406
Marketable securities....................... 3,082 2,931 2,931
Inventories................................. -- 6,220 6,220
Prepaids and other current assets........... 200 347 347
------ -------- --------
Total current assets......................... 4,479 32,904 32,904
Property and equipment, net.................. 500 4,391 4,391
Other assets................................. 102 207 207
------ -------- --------
Total assets................................. $5,081 $ 37,502 $ 37,502
====== ======== ========
Liabilities, Redeemable Convertible Preferred
Stock and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of note payable............. $ -- $ 334 $ 334
Accounts payable............................ 42 5,521 5,521
Accrued expenses............................ 96 323 323
------ -------- --------
Total current liabilities.................... 138 6,178 6,178
Note payable................................. -- 666 666
Commitments and contingencies (Note 4)
Series A Redeemable Convertible Preferred
Stock $.01 par value; 6,380,000 and
8,975,000 shares authorized at July 31, 1998
and May 1, 1999, respectively; 6,186,812 and
8,961,812 shares issued and outstanding at
July 31, 1998 and May 1, 1999, respectively;
0 shares issued and outstanding on a pro
forma basis; liquidation value of $5,630 and
$8,155 at July 31, 1998 and May 1, 1999,
respectively................................ 5,621 8,146 --
Series B Redeemable Convertible Preferred
Stock $.01 par value; 3,625,000 shares
authorized at May 1, 1999; 3,607,062 shares
issued and outstanding at May 1, 1999; 0
shares issued and outstanding on a pro forma
basis; liquidation value of $12,625 at May
1, 1999..................................... -- 12,625 --
Series C Redeemable Convertible Preferred
Stock $.01 par value; 2,500,000 shares
authorized at May 1, 1999; 2,500,000 shares
issued and outstanding at May 1, 1999; 0
shares issued and outstanding on a pro forma
basis; liquidation value of $20,000 at May
1, 1999..................................... -- 20,000 --
Stockholders' equity (deficit):
Common stock, $.001 par value; 15,000,000
and 25,000,000 shares authorized at July
31, 1998 and May 1, 1999, respectively;
2,345,000 and 5,444,104 shares issued and
outstanding at July 31, 1998 and May 1,
1999, respectively: 20,512,978 shares
issued and outstanding on a pro forma
basis...................................... 2 5 20
Additional paid-in capital.................. 192 5,482 46,238
Accumulated deficit......................... (693) (10,796) (10,796)
Note receivable............................. -- (17) (17)
Deferred compensation....................... (179) (4,787) (4,787)
------ -------- --------
Total stockholders' equity (deficit)......... (678) (10,113) 30,658
------ -------- --------
Total liabilities, redeemable convertible
preferred stock and stockholders' equity
(deficit)................................... $5,081 $ 37,502 $ 37,502
====== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
SYCAMORE NETWORKS, INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Period from inception Period from inception
(February 17, 1998) Nine months (February 17, 1998)
through July 31, 1998 ended May 1, 1999 through May 1, 1999
--------------------- ----------------- ---------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Operating expenses:
Manufacturing.......... $ -- $ 1,173 $ 1,173
Research and
development........... 497 6,572 7,069
Sales and marketing.... 92 1,598 1,690
General and
administrative........ 199 752 951
Amortization of stock
compensation.......... 5 496 501
------ -------- --------
Total operating
expenses.............. 793 10,591 11,384
------ -------- --------
Loss from operations.... (793) (10,591) (11,384)
Interest income......... 100 488 588
------ -------- --------
Net loss................ (693) (10,103) (10,796)
====== ======== ========
Basic and diluted net
loss per share......... $(1.66) $ (15.66) $ (19.31)
Weighted average shares
used in computing basic
and diluted net loss
per share.............. 417 645 559
Pro forma basic and
diluted net loss per
share (unaudited)...... $ (.11) $ (1.08) $ (1.38)
Weighted average shares
used in computing pro
forma basic and diluted
net loss per share
(unaudited)............ 6,252 9,351 7,829
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
SYCAMORE NETWORKS, INC.
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' DEFICIT
(in thousands)
<TABLE>
<CAPTION>
Common Stock Additional Total
------------- Paid-in Accumulated Note Deferred Stockholders'
Shares Amount Capital Deficit Receivable Compensation Deficit
------ ------ ---------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock.................. 2,345 $ 2 $ 8 $ -- $ -- $ -- $ 10
Deferred compensation
expense associated with
equity awards.......... -- -- 184 -- -- (184) --
Amortization of deferred
compensation........... -- -- -- -- -- 5 5
Net loss................ -- -- -- (693) -- -- (693)
----- --- ------ -------- ---- ------- --------
Balance, July 31 1998... 2,345 2 192 (693) -- (179) (678)
----- --- ------ -------- ---- ------- --------
Issuance of common
stock.................. 3,099 3 186 -- -- -- 189
Deferred compensation
expense associated with
equity awards.......... -- -- 4,869 -- -- (4,869) --
Issuance of equity
awards in exchange for
services............... -- -- 235 -- -- -- 235
Amortization of deferred
compensation .......... -- -- -- -- -- 261 261
Issuance of common stock
in exchange for note
receivable............. -- -- -- -- (17) -- (17)
Net loss................ -- -- -- (10,103) -- -- (10,103)
----- --- ------ -------- ---- ------- --------
Balance, May 1, 1999
(unaudited)............ 5,444 $ 5 $5,482 $(10,796) $(17) $(4,787) $(10,113)
===== === ====== ======== ==== ======= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
SYCAMORE NETWORKS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Period from Period from
inception inception
(February 17, 1998) Nine months (February 17, 1998)
through ended through
July 31, 1998 May 1, 1999 May 1, 1999
------------------- ----------- -------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss.................. $ (693) $(10,103) $(10,796)
Adjustments to reconcile
net income to net cash
used in operating
activities:
Depreciation and
amortization............ 27 404 431
Amortization of stock
compensation............ 5 496 501
Changes in operating assets
and liabilities:
Inventories.............. -- (6,220) (6,220)
Prepaids and other
current assets.......... (75) (272) (347)
Accounts payable......... 42 5,479 5,521
Accrued expenses......... 96 227 323
------ -------- --------
Net cash used in operating
activities................ (598) (9,989) (10,587)
------ -------- --------
Cash flows from investing
activities:
Purchases of property and
equipment............... (528) (3,294) (3,822)
Purchases of marketable
securities.............. (3,082) (6,026) (9,108)
Maturities of marketable
securities.............. -- 6,177 6,177
Increase in other
assets.................. (102) (105) (207)
------ -------- --------
Net cash used in investing
activities................ (3,712) (3,248) (6,960)
------ -------- --------
Cash flows from financing
activities:
Proceeds from issuance of
redeemable convertible
preferred stock, net.... 5,496 35,275 40,771
Proceeds from issuance of
common stock............ 11 171 182
------ -------- --------
Net cash provided by
financing activities...... 5,507 35,446 40,953
------ -------- --------
Net increase in cash and
cash equivalents.......... 1,197 22,209 23,406
Cash and cash equivalents,
beginning of period....... -- 1,197 --
------ -------- --------
Cash and cash equivalents,
end of period............. $1,197 $ 23,406 $ 23,406
====== ======== ========
Supplementary information:
Equipment acquired under
term note............... $ -- $ 1,000 $ 1,000
Preferred stock note
receivable.............. 125 -- --
Issuance of common stock
in exchange for note
receivable.............. -- 17 17
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
SYCAMORE NETWORKS, INC
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Business:
Sycamore Networks (the "Company") was incorporated in Delaware on February
17, 1998. The Company develops and markets software-based intelligent optical
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 financings.
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:
Unaudited Interim Financial Data
The accompanying balance sheet as of May 1, 1999, the statements of
operations, cash flows and stockholders' deficit for the nine months ended May
1, 1999, and the statements of operations, cash flows and stockholders'
deficit for the period from inception (February 17, 1998) through May 1, 1999
are unaudited. In the opinion of management, these statements have been
prepared on the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for
the fair statement of the results of these periods. The data disclosed in
notes to the financial statements for these periods are unaudited. The results
for the nine months ended May 1, 1999 are not necessarily indicative of
results to be expected for the entire year, although the Company expects to
incur a significant loss for the year ending July 31, 1999.
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, the fair value of marketable
securities, which were comprised of commercial paper, 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).
F-7
<PAGE>
SYCAMORE NETWORKS, INC
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Revenue Recognition
Revenue from product sales is recognized upon execution of a contract and
the completion of all delivery obligations provided that there are no
uncertainties regarding customer acceptance and collectibility is deemed
probable. If uncertainties exist, revenue is recognized when such
uncertainties are resolved. Revenue from technical support and maintenance
contracts is 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.
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.
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 straight-line
method over the 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.
F-8
<PAGE>
SYCAMORE NETWORKS, INC
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents. The
Company invests its excess cash primarily in deposits with commercial banks
and high-quality corporate securities. Certain components and parts used in
the Company's products are procured from a single source. The Company obtains
some of its 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 on a purchase order basis. 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 has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" for the period from inception (February
17, 1998) through July 31, 1998. This statement requires that changes in
comprehensive income be shown in a financial statement that is displayed with
the same prominence as other financial statements. To date, comprehensive loss
and net loss are the same.
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 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.
F-9
<PAGE>
SYCAMORE NETWORKS, INC
(A Development Stage Enterprise)
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 Period from inception
(February 17, 1998) Nine months (February 17, 1998)
through July 31, 1998 ended May 1, 1999 through May 1, 1999
--------------------- ----------------- ---------------------
(unaudited) (unaudited)
(in thousands, except per share data)
<S> <C> <C> <C>
Numerator:
Net loss................ $ (693) $(10,103) $(10,796)
Denominator:
Historical:
Weighted average common
shares outstanding..... 2,169 4,875 3,522
Weighted average common
shares outstanding
subject to repurchase.. (1,752) (4,230) (2,963)
------- -------- --------
Denominator for basic
and diluted
calculation............ 417 645 559
------- -------- --------
Basic and diluted net
loss per share......... $ (1.66) $(15.66) $(19.31)
======= ======== ========
Pro forma:
Net loss................ $ (693) $(10,103) $(10,796)
======= ======== ========
Historical weighted
average common shares
outstanding............ 417 645 559
Weighted average number
of shares assumed upon
conversion of
redeemable convertible
preferred stock........ 5,835 8,706 7,270
------- -------- --------
Shares used in computing
pro forma basic and
diluted net loss per
share (unaudited)...... 6,252 9,351 7,829
======= ======== ========
Pro forma basic and
diluted net loss per
share (unaudited)...... $ (.11) $ (1.08) $ (1.38)
======= ======== ========
</TABLE>
Options to purchase 1,019,000 shares of common stock at an average exercise
price of $.66 per share have not been included in the computation of diluted
net loss per share for the nine months ended May 1, 1999 and for the period
from inception (February 17, 1998) through May 1, 1999, as their effect would
have been anti-dilutive.
F-10
<PAGE>
SYCAMORE NETWORKS, INC
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Pro Forma Net Loss Per Share (Unaudited)
Pro forma net loss per share for the period from inception (February 17,
1998) through July 31, 1998 and the nine months ended May 1, 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,
and C 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.
Pro Forma Balance Sheet (Unaudited)
Upon the closing of the Company's initial public offering, all of the
outstanding shares of Series A, B and C redeemable convertible preferred stock
will automatically convert into 15,068,874 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 May 1, 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.
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. We do not expect the adoption
of this standard to have a material effect on our financial condition or
results 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. 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
expected to have an impact on our financial condition or results of
operations.
F-11
<PAGE>
SYCAMORE NETWORKS, INC
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Property and Equipment:
Property and equipment consisted of the following at July 31, 1998:
<TABLE>
<S> <C>
Computer software and equipment........................................... $500
Furniture and office equipment............................................ 27
----
527
Less accumulated depreciation and amortization............................ (27)
----
$500
====
</TABLE>
Depreciation and amortization expense was $27,000 for the period from
inception (February 17, 1998) through July 31, 1998.
4. Commitments and Contingencies:
Capital and Operating Leases
The Company's primary office facility is leased under a noncancelable lease
that expires in 1999. Rent expense under operating leases was $27,500 for the
period from inception (February 17, 1998) through July 31, 1998. At July 31,
1998 future minimum lease payments under all non-cancelable operating leases
are as follows, in thousands:
<TABLE>
<S> <C>
1999..................................................................... $ 158
2000..................................................................... 42
-----
Total future minimum lease payments...................................... $ 200
=====
</TABLE>
At July 31, 1998, as collateral for the primary office facility lease, the
Company issued a stand-by letter of credit for $100,000 which is collaterlized
by commercial paper. The letter of credit is irrevocable and expires in July
1999.
5. Common Stock
The Company has authorized 15,000,000 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. Dividends may be declared by the board of directors from
lawfully available funds, subject to any preferential dividend rights of any
outstanding preferred stock. 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.
6. Restricted Stock
Restricted stock may be issued to employees, officers, directors,
consultants, and other advisors. The Company has the right to repurchase the
common stock at the issuance price (which shall be at least equal to the par
value per share for each share of common stock subject to such award) or other
stated or formula price in the event that conditions specified by the board of
directors in the award agreement are not satisfied prior to the end of the
applicable restriction period or periods established for such award. The
vesting period is generally five years. The number of shares of restricted
stock outstanding at July 31, 1998 was 2,345,000 of which 1,876,250 were
subject to repurchase at their original issuance prices ranging from $.001 to
$.05.
F-12
<PAGE>
SYCAMORE NETWORKS, INC
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The weighted average grant date fair value of restricted stock awards for
the period from inception (February 17, 1998) through July 31, 1998 was $.49.
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates in accordance with SFAS
123, the Company's net loss for the period from inception (February 17, 1998)
through July 31, 1998 would have been increased to $807,000 or $1.94 per basic
and diluted share. The effects of applying SFAS 123 in this pro forma
disclosure are not indicative of future amounts and additional awards in
future years are anticipated.
For this pro forma calculation, the fair value of each restricted stock
award was estimated on the date of grant using the minimum value option
pricing model with the following weighted average assumptions: no volatility,
a weighted average risk free interest rate of 5.4%, a weighted average
expected option life of 4 years and no dividend yield.
7. Redeemable Convertible Preferred Stock
The Company's board of directors has authorized 6,380,000 shares of Series
A redeemable convertible preferred stock ("Series A"), $.01 par value. In
February 1998, the Company sold 6,049,450 shares 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. The terms of the Series A are as
follows:
Conversion
Each share of Series A may be converted into one share 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. Upon the
earlier of the closing of an initial public offering of the Company's
common stock at a price which equals or exceeds $5 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 of directors, dividends on
Series A are payable in cash in preference and prior to any payment of any
dividend on common shares. The holders of Series A 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 of Series A 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 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 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 held,
equal to $.91, 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, 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 price of each share
of Series A is $.91 plus all declared and unpaid dividends, if any.
F-13
<PAGE>
SYCAMORE NETWORKS, INC
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. Income Taxes:
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 are as
follows (in thousands):
<TABLE>
<S> <C>
Net operating loss carryforwards......................................... $ 122
Capitalized start up costs............................................... 124
Other.................................................................... 21
-----
267
-----
Valuation allowance...................................................... (267)
-----
Net deferred tax asset................................................... $ --
=====
</TABLE>
At July 31, 1998, the Company had available net operating loss
carryforwards for federal and state tax income purposes of approximately
$330,000. The state and federal carryforwards expire in 2004 and 2019,
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 our 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.
10. Subsequent Events
Redeemable Convertible Preferred Stock
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
redeemable convertible preferred stock ("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. The terms of the Series B are similar to the terms of Series A.
In February 1999, the Company authorized 2,500,000 shares of Series C
redeemable convertible preferred stock ("Series C"), $.01 par value. In
February 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. The terms
of the Series C are similar to the terms of Series A.
In July 1999, the Company authorized 692,201 shares of Series D redeemable
convertible preferred stock ("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 the Series D are
similar to the terms of Series A.
F-14
<PAGE>
SYCAMORE NETWORKS, INC
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note Payable
On August 5, 1998, the Company entered into an equipment loan agreement
with a bank. Under this loan agreement, the Company may borrow up to
$1,000,000, for the purpose of acquisition of equipment, for a period of ten
months. At June 30, 1999, the outstanding balance will be converted into a
term loan, to be repaid in thirty equal monthly installments commencing July
1, 1999. The interest on the outstanding balance is calculated daily at the
bank's prime rate, plus 1.5%. The loan is 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. At May 1, 1999, a total of $1,000,000 is outstanding under this
equipment loan agreement.
On April 22, 1999, the Company entered into an equipment loan agreement
with the same bank. Under this loan agreement, the Company may borrow up to
$5,000,000, 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. The interest on the outstanding balance is calculated daily
at the bank's prime rate, plus 1.5%. This loan is also 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.
Letters of Credit
In December 1998, as collateral for an office facility lease, the Company
has issued a stand-by letter of credit for $92,000 which is collateralized by
United States Treasury Bills. The letter of credit is irrevocable and is
reduced by 25% after 13 months and 25% after 25 months.
In July 1999, as collateral for inventory purchases made by a third party
manufacturer on behalf of the Company, the Company has issued a stand-by
letter of credit for $4,000,000 which is collateralized by a United States
Government Security. The letter of credit is irrevocable and expires in
October 1999.
1998 Stock Incentive Plan
In August 1998, the 1998 Stock Incentive Plan (the "Plan") was adopted by
the board of directors (the "Board") and received stockholder approval on
October 19, 1998. Up to 8,855,000 shares of common stock, subject to
adjustment in the event of stock splits and other similar events, may be
issued pursuant to awards granted under the Plan. The Plan provides for the
grant of incentive stock options intended to qualify under Section 422 of the
Internal Revenue Code, nonstatutory stock options, restricted stock awards and
other stock-based awards.
Officers, employees, directors, consultants and advisors and those of our
subsidiaries are eligible to receive awards under the 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.
Optionees receive the right to purchase a specified number of shares of our
common stock at a specified option price, subject to the terms and conditions
of 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 Board determines
F-15
<PAGE>
SYCAMORE NETWORKS, INC
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
the term of each option, the option exercise price, and the vesting terms.
Stock options generally expire ten years from the date of grant. The Plan
permits the Board 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.
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.
Deferred Stock Compensation
During the period from August 1, 1998 to May 1, 1999, the Company granted
stock awards to purchase 3,964,604 shares of its common stock with exercise
prices ranging from $.05 to $1.00. The Company recorded deferred compensation
and compensation expense relating to these awards totaling $4,869,000 and
$261,000, respectively, representing the difference between the deemed fair
market value of the common stock on the date of grant and the exercise price.
Compensation relating to options which vested immediately upon grant was
expensed in full at the date of grant, while compensation related to options
which vest over time was recorded as a component of stockholders' deficit and
is being amortized over the vesting periods of the related options.
Non-Employee Stock Compensation
During the nine months ended May 1, 1999, the Company granted 63,500 stock
awards to non-employees with an estimated fair value of $322,000. 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 4.5%, a weighted-average expected option
life of 3 years, no dividend yield and a 60% volatility. For the nine months
ended May 1, 1999, the Company recognized compensation expense of $235,000
related to these options.
Stockholder Note Receivable
At May 1, 1999, the Company held a note receivable in the amount of $17,500
from a stockholder in consideration for the purchase of common stock. The note
is due in February 2004 and is collateralized by the underlying common stock
and, consequently, is reflected as a component of stockholders' deficit.
Common Stock Purchase Option
In March 1999, the Company signed a 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 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.
F-16
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the Registrant in connection with the sale
of common stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fee and the Nasdaq National Market listing
fee.
<TABLE>
<S> <C>
SEC registration fee................................................ $31,970
NASD filing fee..................................................... 12,000
Nasdaq National Market listing fee.................................. *
Printing and engraving expenses..................................... *
Legal fees and expenses............................................. *
Accounting fees and expenses........................................ *
Blue Sky fees and expenses (including legal fees)................... *
Transfer agent and registrar fees and expenses...................... *
Miscellaneous....................................................... *
-------
Total........................................................... *
=======
</TABLE>
- --------
* To be filed by amendment
Item 14. Indemnification of Directors and Officers.
Article EIGHTH of the Registrant's Amended and Restated Certificate of
Incorporation (the "Restated Certificate") provides that no director of the
Registrant shall be personally liable for any monetary damages for any breach
of fiduciary duty as a director, except to the extent that the Delaware
General Corporation Law prohibits the elimination or limitation of liability
of directors for breach of fiduciary duty.
Article NINTH of the Restated Certificate provides that a director or
officer of the Registrant (a) shall be indemnified by the Registrant against
all expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement incurred in connection with any litigation or other legal
proceeding (other than an action by or in the right of the Registrant) brought
against him by virtue of his position as a director or officer of the
Registrant if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Registrant, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful and (b) shall be indemnified by the
Registrant against all expenses (including attorneys' fees) and amounts paid
in settlement incurred in connection with any action by or in the right of the
Registrant brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Registrant, unless the Court of Chancery of Delaware determines that, despite
such adjudication but in view of all of the circumstances, he is entitled to
indemnification of such expenses. Notwithstanding the foregoing, to the extent
that a director or officer has been successful, on the merits or otherwise,
including, without limitation, the dismissal of an action without prejudice,
he is required to be indemnified by the Registrant against all expenses
(including attorneys' fees) incurred in connection therewith. Expenses shall
be advanced to a director or officer at his request, unless it is determined
that he did not act in good faith and in a manner he reasonably believed to be
in, or not opposed to, the best interests of the Registrant, and, with respect
to any criminal action or proceeding had reasonable cause to believe that his
conduct was unlawful, provided that he undertakes to repay the amount advanced
if it is ultimately determined that he is not entitled to indemnification for
such expenses.
II-1
<PAGE>
Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director
or officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether such person is entitled to indemnification. As a condition precedent
to the right of indemnification, the director or officer must give the
Registrant notice of the action for which indemnity is sought and the
Registrant has the right to participate in such action or assume the defense
thereof.
Article NINTH of the Restated Certificate further provides that the
indemnification provided therein is not exclusive, and provides that in the
event that the Delaware General Corporation Law is amended to expand the
indemnification permitted to directors or officers, the Registrant must
indemnify those persons to the fullest extent permitted by such law as so
amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent
of the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred
in connection with an action or proceeding to which he is or is threatened to
be made a party by reason of such position, if such person shall have acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, in any criminal proceeding, if
such person had no reasonable cause to believe his conduct was unlawful;
provided that, in the case of actions brought by or in the right of the
corporation, no indemnification shall be made with respect to any matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the adjudicating court determines that such
indemnification is proper under the circumstances.
The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of the Company against certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Act"). Reference is made to
the form of Underwriting Agreement to be filed as Exhibit 1.1 hereto.
The Registrant expects to obtain liability insurance for its officers and
directors.
Item 15. Recent Sales of Unregistered Securities.
Since inception, the Registrant has issued the following securities that
were not registered under the Securities Act as summarized below.
(a) Issuances of Capital Stock.
1. Between February 18, 1998 and October 28, 1998, the Registrant
issued and sold pursuant to stock restriction agreements outside
of the 1998 Stock Incentive Plan an aggregate of 5,115,604 shares
of its common stock for an aggregate purchase price of
approximately $158,005.
2. Between February 19, 1998 and October 29, 1998, the Registrant
issued and sold an aggregate of 8,961,812 shares of its Series A
redeemable convertible preferred stock for an aggregate purchase
price of approximately $8,155,249.
3. Between October 26, 1998 and July 31, 1999, the Registrant issued
and sold pursuant to stock restriction agreements under the 1998
Stock Incentive Plan an aggregate of 617,500 shares of its common
stock for an aggregate purchase price of $353,250.
4. Between December 3, 1998 and February 11, 1999, the Registrant
issued and sold an aggregate of 3,607,062 shares of its Series B
redeemable convertible preferred stock for an aggregate purchase
price of $12,624,717.
II-2
<PAGE>
5. On March 2, 1999, the Registrant issued and sold an aggregate of
2,500,000 shares of its Series C redeemable convertible preferred
stock for an aggregate purchase price of $20,000,000.
6. On July 23, 1999, the Registrant issued and sold an aggregate of
692,201 shares of its Series D redeemable convertible preferred
stock for an aggregate price of $14,999,996.
(b) Certain Grants and Exercises of Stock Options.
1. From inception through June 30, 1999, the Registrant granted
stock options to purchase 1,856,200 shares of common stock at
exercise prices ranging from $.05 to $1.00 per share to employees,
consultants and directors pursuant to its 1998 Stock Incentive
Plan, as amended.
2. From inception through June 30, 1999, the Registrant issued and
sold an aggregate of 18,500 shares of its common stock to
employees, consultants and directors for aggregate consideration
of approximately $6,025 pursuant to exercises of options granted
under its 1998 Stock Incentive Plan.
No underwriters were involved in any of the foregoing sales of securities.
Such sales were made in reliance upon an exemption from the registration
provisions of the Securities Act set forth in Section 4(2) thereof relative to
sales by an issuer not involving any public offering or the rules and
regulations thereunder, or, in the case of options to purchase common stock
and sales of restricted common stock, Rule 701 of the Securities Act. All of
the foregoing securities are deemed restricted securities for the purposes of
the Securities Act.
II-3
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
No. Description
------- ---------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Registrant, as amended
*3.2 Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be filed prior to the closing of this offering
3.3 By-Laws of the Registrant
*3.4 Form of Amended and Restated By-Laws of the Registrant, to be
effective upon the closing of this offering
*4.1 Specimen common stock certificate
4.2 See Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions of the Certificate
of Incorporation and By-Laws of the Registrant defining the rights of
holders of common stock of the Registrant
4.3 Second Amended and Restated Investor Rights Agreement dated February
26, 1999, as amended by Amendment No. 1 dated July 23, 1999
*5.1 Opinion of Hale and Dorr LLP
10.1 1998 Stock Incentive Plan, as amended
*10.2 1999 Non-Employee Directors' Option Plan
+10.3 Purchase and License Agreement between Sycamore and Williams
Communications, Inc.
10.4 Letter Agreement between Sycamore and Fleet National Bank dated April
22, 1999
10.5 Inventory and Accounts Receivable Security Agreement between Sycamore
and Fleet National Bank dated April 22, 1999
10.6 Supplementary Security Agreement between Sycamore and Fleet National
Bank dated April 22, 1999
10.7 Lease dated as of December 21, 1998 between BerCar II LLC, a
Massachusetts limited liability company and the Company regarding 10
Elizabeth Drive, Chelmsford, MA
*10.8 1999 Stock Incentive Plan
23.1 Consent of PricewaterhouseCoopers LLP
*23.2 Consent of Hale and Dorr LLP (included in Exhibit 5.1)
24.1 Powers of Attorney (see page II-5)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment requested for certain portions of this Exhibit
pursuant to Rule 406 promulgated under the Securities Act, which portions
are omitted and filed separately with the Securities and Exchange
Commission.
(b) Financial Statement Schedules:
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
Item 17. Undertakings.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-4
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the registrant pursuant to the Delaware General
Corporation Law, the Restated Certificate of the registrant, the Underwriting
Agreement, or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act, and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered
hereunder, the registrant will, unless in the opinion of counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that:
(1) For purpose of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4), or 497(h) under the Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For purpose of determining any liability under the Act, each post-
effective amendment that contains a form of prospectus shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Chelmsford, Massachusetts, on this
6th day of August, 1999.
SYCAMORE NETWORKS, INC.
By: /s/ Daniel E. Smith
----------------------------------
Daniel E. Smith
President and Chief Executive
Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers, directors and authorized representatives of
Sycamore Networks, Inc. hereby severally constitute and appoint Gururaj
Deshpande, Daniel E. Smith and Frances M. Jewels, and each of them singly, our
true and lawful attorneys with full power to them, and each of them singly,
with full powers of substitution and resubstitution, to sign for us and in our
names in the capacities indicated below, the Registration Statement on Form S-
1 filed herewith and any and all pre-effective and post-effective amendments
to said Registration Statement, and any subsequent Registration Statement for
the same offering which may be filed under Rule 462(b), and generally to do
all such things in our names and on our behalf in our capacities as officers
and directors to enable Sycamore Networks, Inc. to comply with the provisions
of the Securities Act of 1933, as amended, and all requirements of the
Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys, or any of them, or
their substitute or substitutes, to said Registration Statement and any and
all amendments thereto or to any subsequent Registration Statement for the
same offering which may be filed under Rule 462(b).
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities set forth below on August 6, 1999.
<TABLE>
<S> <C>
Signature Title
/s/ Gururaj Deshpande Chairman of the Board of Directors
- -----------------------------------
Gururaj Deshpande
/s/ Daniel E. Smith President, Chief Executive Officer and
- ----------------------------------- Director
Daniel E. Smith
/s/ Fances M. Jewels Chief Financial Officer, Vice President,
- ----------------------------------- Finance and Administration, Secretary and
Frances M. Jewels Treasurer
/s/ Timothy Barrows Director
- -----------------------------------
Timothy Barrows
/s/ Paul Ferri Director
- -----------------------------------
Paul J. Ferri
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- ---------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Registrant, as amended
*3.2 Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be filed prior to the closing of this offering
3.3 By-Laws of the Registrant
*3.4 Form of Amended and Restated By-Laws of the Registrant, to be
effective upon the closing of this offering
*4.1 Specimen common stock certificate
4.2 See Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions of the Certificate
of Incorporation and By-Laws of the Registrant defining the rights of
holders of common stock of the Registrant
4.3 Second Amended and Restated Investor Rights Agreement dated February
26, 1999, as amended by Amendment No. 1 dated July 23, 1999
*5.1 Opinion of Hale and Dorr LLP
10.1 1998 Stock Incentive Plan, as amended
*10.2 1999 Non-Employee Directors' Option Plan
+10.3 Purchase and License Agreement between Sycamore and Williams
Communications, Inc.
10.4 Letter Agreement between Sycamore and Fleet National Bank dated April
22, 1999
10.5 Inventory and Accounts Receivable Security Agreement between Sycamore
and Fleet National Bank dated April 22, 1999
10.6 Supplementary Security Agreement between Sycamore and Fleet National
Bank dated April 22, 1999
10.7 Lease dated as of December 21, 1998 between BerCar II LLC, a
Massachusetts limited liability company and the Company regarding 10
Elizabeth Drive, Chelmsford, MA
*10.8 1999 Stock Incentive Plan
23.1 Consent of PricewaterhouseCoopers LLP
*23.2 Consent of Hale and Dorr LLP (included in Exhibit 5.1)
24.1 Powers of Attorney (see page II-5)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment requested for certain portions of this Exhibit
pursuant to Rule 406 promulgated under the Securities Act, which portions
are omitted and filed separately with the Securities and Exchange
Commission.
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
SYCAMORE NETWORKS, INC.
FIRST. The name of the Corporation is: Sycamore Networks, Inc.
SECOND. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or promoted
by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 22,500,000 shares, consisting of
(i) 15,000,000 shares of Common Stock, $.001 par value per share ("Common
Stock"), and (ii) 7,500,000 shares of Preferred Stock, $.01 par value per share
("Preferred Stock").
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
------------
1. General. 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
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one vote for
------
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled
<PAGE>
to vote, irrespective of the provisions of Section 242(b)(2) of the General
Corporation Law of Delaware .
3. Dividends. Dividends may be declared and paid on the Common Stock
---------
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
-----------
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
---------------
1. Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issue of the shares thereof, to determine and fix such voting powers, full
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of Delaware. Without
limiting the generality of the foregoing, the resolutions providing for issuance
of any series of Preferred Stock may provide that such series shall be superior
or rank equally or be junior to the Preferred Stock of any other series to the
extent permitted by law. Except as otherwise provided in this Certificate of
Incorporation, no vote of the holders of the Preferred Stock or Common Stock
shall be a prerequisite to the designation or issuance of any shares of any
series of the Preferred Stock authorized by and complying with the conditions of
this Certificate of Incorporation, the right to have such vote being expressly
waived by all present and future holders of the capital stock of the
Corporation.
-2-
<PAGE>
FIFTH. The name and mailing address of the sole incorporator are as
follows:
NAME MAILING ADDRESS
---- ---------------
Mark G. Borden 60 State Street
Boston, MA 02109
SIXTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of the Corporation.
SEVENTH. Except to the extent that the General Corporation Law of Delaware
prohibits the elimination or limitation of liability of directors for breaches
of fiduciary duty, no director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability. No amendment to or repeal of this provision shall apply to or have
any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
EIGHTH. The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of Delaware, as amended from time to time,
indemnify each person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was, or has agreed to become, a director or officer of the Corporation, or
is or was serving, or has agreed to serve, at the request of the Corporation, as
a director, officer or trustee of, or in a similar capacity with, another
corporation, partnership, joint venture, trust or other enterprise (including
any employee benefit plan) (all such persons being referred to hereafter as an
"Indemnitee"), or by reason of any action alleged to have been taken or omitted
in such capacity, against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by or on
behalf of an Indemnitee in connection with such action, suit or proceeding and
any appeal therefrom.
As a condition precedent to his right to be indemnified, the Indemnitee
must notify the Corporation in writing as soon as practicable of any action,
suit, proceeding or investigation involving him for which indemnity will or
could be sought. With respect to any action, suit, proceeding or investigation
of which the Corporation is so notified, the Corporation will be entitled to
participate therein at its
-3-
<PAGE>
own expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee.
In the event that the Corporation does not assume the defense of any
action, suit, proceeding or investigation of which the Corporation receives
notice under this Article, the Corporation shall pay in advance of the final
disposition of such matter any expenses (including attorneys' fees) incurred by
an Indemnitee in defending a civil or criminal action, suit, proceeding or
investigation or any appeal therefrom; provided, however, that the payment of
-------- -------
such expenses incurred by an Indemnitee in advance of the final disposition of
such matter shall be made only upon receipt of an undertaking by or on behalf of
the Indemnitee to repay all amounts so advanced in the event that it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
by the Corporation as authorized in this Article, which undertaking shall be
accepted without reference to the financial ability of the Indemnitee to make
such repayment; and further provided that no such advancement of expenses shall
------- --------
be made if it is determined that (i) the Indemnitee did not act in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of the Corporation, or (ii) with respect to any criminal action or
proceeding, the Indemnitee had reasonable cause to believe his conduct was
unlawful.
The Corporation shall not indemnify an Indemnitee seeking indemnification
in connection with a proceeding (or part thereof) initiated by such Indemnitee
unless the initiation thereof was approved by the Board of Directors of the
Corporation. In addition, the Corporation shall not indemnify an Indemnitee to
the extent such Indemnitee is reimbursed from the proceeds of insurance, and in
the event the Corporation makes any indemnification payments to an Indemnitee
and such Indemnitee is subsequently reimbursed from the proceeds of insurance,
such Indemnitee shall promptly refund such indemnification payments to the
Corporation to the extent of such insurance reimbursement.
All determinations hereunder as to the entitlement of an Indemnitee to
indemnification or advancement of expenses shall be made in each instance by (a)
a majority vote of the directors of the Corporation consisting of persons who
are not at that time parties to the action, suit or proceeding in question
("disinterested directors"), whether or not a quorum, (b) a majority vote of a
quorum of the outstanding shares of stock of all classes entitled to vote for
directors, voting as a single class, which quorum shall consist of stockholders
who are not at that time parties to the action, suit or proceeding in question,
(c) independent legal counsel (who may, to the extent permitted by law, be
regular legal counsel to the Corporation), or (d) a court of competent
jurisdiction.
The indemnification rights provided in this Article (i) shall not be deemed
exclusive of any other rights to which an Indemnitee may be entitled under any
law, agreement or vote of stockholders or disinterested directors or otherwise,
and
-4-
<PAGE>
(ii) shall inure to the benefit of the heirs, executors and administrators of
the Indemnitees. The Corporation may, to the extent authorized from time to time
by its Board of Directors, grant indemnification rights to other employees or
agents of the Corporation or other persons serving the Corporation and such
rights may be equivalent to, or greater or less than, those set forth in this
Article.
NINTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute and this Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
EXECUTED at Boston, Massachusetts, on February 17, 1998.
/s/ Mark G. Borden
--------------------
Mark G. Borden
Incorporator
-5-
<PAGE>
Certificate of Designations of the Preferred Stock
of
Sycamore Networks, Inc.
To be Designated
Series A Convertible Preferred Stock
--------------------------------------------------
Sycamore Networks, Inc., a Delaware corporation (the "Corporation"),
pursuant to authority conferred on the Board of Directors of the Corporation by
the Certificate of Incorporation and in accordance with the provisions of
Section 151 of the General Corporation Law of the State of Delaware, certifies
that the Board of Directors of the Corporation duly adopted the following
resolution:
RESOLVED: That, pursuant to the authority expressly granted to and vested
--------
in the Board of Directors of the Corporation in accordance with the provisions
of its Certificate of Incorporation, a series of Preferred Stock of the
Corporation be and hereby is established, consisting of 5,830,000 shares, to be
designated "Series A Convertible Preferred Stock" (hereinafter "Series A
Preferred Stock"); that the Board of Directors be and hereby is authorized to
issue such shares of Series A Preferred Stock from time to time and for such
consideration and on such terms as the Board of Directors shall determine; and
that, subject to the limitations provided by law and by the Certificate of
Incorporation, the powers, designations, preferences and relative,
participating, optional or other special rights of, and the qualifications,
limitations or restrictions upon, the Series A Preferred Stock shall be as
follows:
1. Dividends.
---------
(a) The Corporation shall not declare or pay any dividends or
distributions (as defined below) on shares of Common Stock until the holders of
the Series A Preferred Stock then outstanding shall have first received, or
simultaneously receive, a like distribution on each outstanding share of Series
A Preferred Stock, in an amount at least equal to the product of (i) the per
share amount, if any, of the dividends or distributions to be declared, paid or
set aside for the Common Stock, multiplied by (ii) the number of whole shares of
Common Stock into which such share of Series A Preferred Stock is convertible as
of the record date for such dividend or distribution.
(b) For purposes of this Section 1, "distribution" shall mean the
transfer of cash or property without consideration, whether by way of dividend
or otherwise, payable other than in Common Stock or other securities of the
Corporation, or the purchase or redemption of shares of the Corporation (other
than repurchases of Common Stock held by employees or directors of, or
consultants to,
<PAGE>
the Corporation upon termination of their employment or services pursuant to
agreements approved by the Board of Directors providing for such repurchase at a
price equal to the original issue price of such shares) for cash or property,
including any such transfer, purchase or redemption by a subsidiary of the
Corporation.
2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations
-----------------------------------------------------------------------
and Asset Sales.
---------------
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, after and
subject to the payment in full of all amounts required to be distributed to the
holders of any other class or series of stock of the Corporation ranking on
liquidation prior and in preference to the Series A Preferred Stock, but before
any payment shall be made to the holders of Common Stock or any other class or
series of stock ranking on liquidation junior to the Series A Preferred Stock by
reason of their ownership thereof, an amount equal to $0.91 per share (subject
to appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares), plus any
dividends declared but unpaid on such shares. If upon any such liquidation,
dissolution or winding up of the Corporation the remaining assets of the
Corporation available for distribution to its stockholders shall be insufficient
to pay the holders of shares of Series A Preferred Stock the full amount to
which they shall be entitled, the holders of shares of Series A Preferred Stock
and any class or series of stock ranking on liquidation on a parity with the
Series A Preferred Stock shall share ratably in any distribution of the
remaining assets and funds of the Corporation in proportion to the respective
amounts which would otherwise be payable in respect of the shares held by them
upon such distribution if all amounts payable on or with respect to such shares
were paid in full.
(b) After the payment of all preferential amounts required to be paid
to the holders of any class or series of stock of the Corporation ranking on
liquidation prior to and in preference to the Common Stock, upon the
dissolution, liquidation or winding up of the Corporation, the remaining assets
and funds of the Corporation available for distribution to its stockholders
shall be distributed among the holders of shares of Common Stock.
(c) Any (i) merger or consolidation which results in the voting
securities of the Corporation outstanding immediately prior thereto representing
immediately thereafter (either by remaining outstanding or by being converted
into voting securities of the surviving or acquiring entity) less than a
majority of the combined voting power of the voting securities of the
Corporation or such surviving or acquiring entity outstanding immediately after
such merger or consolidation,
-2-
<PAGE>
(ii) sale of all or substantially all of the assets of the Corporation or (iii)
sale of shares of capital stock of the Corporation, in a single transaction or
series of related transactions, representing at least 80% of the of the voting
power of the voting securities of the Corporation, shall be deemed to be a
liquidation of the Corporation, and all consideration payable to the
stockholders of the Corporation (in the case of a merger or consolidation), or
all consideration payable to the Corporation (net of obligations owed by the
Corporation), together with all other available assets of the Corporation (in
the case of an asset sale), shall be distributed to the holders of capital stock
of the Corporation in accordance with Subsections 2(a) and 2(b) above. The
Corporation shall promptly provide to the holders of shares of Series A
Preferred Stock such information concerning the terms of such merger,
consolidation or asset sale and the value of the assets of the Corporation as
may reasonably be requested by the holders of Series A Preferred Stock. If
applicable, the Corporation shall cause the agreement or plan of merger or
consolidation to provide for a rate at which the shares of capital stock of the
Corporation are converted into or exchanged for cash, new securities or other
property which gives effect to this provision. The amount deemed distributed to
the holders of Series A Preferred Stock upon any such merger or consolidation
shall be the cash or the value of the property, rights or securities distributed
to such holders by the Corporation and/or by the acquiring person, firm or other
entity. The value of such property, rights or other securities shall be
determined in good faith by the Board of Directors of the Corporation.
3. Voting.
------
(a) Each holder of outstanding shares of Series A Preferred Stock
shall be entitled to the number of votes equal to the number of whole shares of
Common Stock into which the shares of Series A Preferred Stock held by such
holder are convertible (as adjusted from time to time pursuant to Section 4
hereof) as of the record date, at each meeting of stockholders of the
Corporation (and written actions of stockholders in lieu of meetings) with
respect to any and all matters presented to the stockholders of the Corporation
for their action or consideration. Except as provided by law or by the
provisions of Section 3(b) or Section 7 below or by the provisions establishing
any other series of stock, holders of Series A Preferred Stock and of any other
outstanding series of stock shall vote together with the holders of Common Stock
as a single class.
(b) For so long as at least 1,375,000 shares of Series A Preferred
Stock (subject to appropriate adjustment for stock splits, stock dividends,
combinations and other similar recapitalizations affecting such shares) are
outstanding (or such lesser number of shares of Series A Preferred Stock as are
then outstanding if the Corporation has, prior to such time, failed to redeem
shares of Series A Preferred Stock when such redemption was due in accordance
with Section 6 below), the holders of record of the shares of Series A Preferred
Stock, exclusively and as a separate class, shall be entitled to elect two
members of the Board of Directors of the
-3-
<PAGE>
Corporation. At any meeting held for the purpose of electing directors, the
presence in person or by proxy of the holders of a majority of the shares of
Series A Preferred Stock then outstanding shall constitute a quorum of the
Series A Preferred Stock for the purpose of electing directors by holders of the
Series A Preferred Stock. A vacancy in any directorship filled by the holders of
Series A Preferred Stock shall be filled only by vote or written consent in lieu
of a meeting of the holders of the Series A Preferred Stock .
4. Optional Conversion. The holders of the Series A Preferred Stock
-------------------
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock shall be
----------------
convertible, at the option of the holder thereof, at any time and from time to
time, and without the payment of additional consideration by the holder thereof,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $0.91 by the Conversion Price (as defined below) in
effect at the time of conversion. The "Conversion Price" shall initially be
$0.91. Such Conversion Price, and the rate at which shares of Series A
Preferred Stock may be converted into shares of Common Stock, shall be subject
to adjustment as provided below.
In the event of a notice of redemption of any shares of Series A Preferred
Stock pursuant to Section 6 hereof, the Conversion Right of the shares
designated for redemption shall terminate at the close of business on the first
full day preceding the date fixed for redemption, unless the redemption price is
not paid when due, in which case the Conversion Right for such shares shall
continue until such price is paid in full. In the event of a liquidation of the
Corporation (or deemed liquidation under Section 2(c) hereof), the Conversion
Right shall terminate at the close of business on the first full business day
preceding the date fixed for the payment of any amounts distributable on
liquidation (or deemed liquidation under Section 2(c) hereof) to the holders of
Series A Preferred Stock.
(b) Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issued upon conversion of the Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price.
(c) Mechanics of Conversion.
-----------------------
(i) In order for a holder of Series A Preferred Stock to convert
shares of Series A Preferred Stock into shares of Common Stock, such holder
shall surrender the certificate or certificates for such shares of Series A
Preferred Stock, at the office of the transfer agent for the Series A Preferred
Stock (or at the principal office of the Corporation if the Corporation serves
as its own transfer agent), together with written notice that such holder elects
to convert all or any number of the shares
-4-
<PAGE>
of the Series A Preferred Stock represented by such certificate or certificates.
Such notice shall state such holder's name or the names of the nominees in which
such holder wishes the certificate or certificates for shares of Common Stock to
be issued. If required by the Corporation, certificates surrendered for
conversion shall be endorsed or accompanied by a written instrument or
instruments of transfer, in form satisfactory to the Corporation, duly executed
by the registered holder or his or its attorney duly authorized in writing. The
date of receipt of such certificates and notice by the transfer agent (or by the
Corporation if the Corporation serves as its own transfer agent) shall be the
conversion date ("Conversion Date"). The Corporation shall, as soon as
practicable after the Conversion Date, issue and deliver at such office to such
holder of Series A Preferred Stock, or to his or its nominees, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled, together with cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the Series A Preferred
Stock shall be outstanding, reserve and keep available out of its authorized but
unissued stock, for the purpose of effecting the conversion of the Series A
Preferred Stock, such number of its duly authorized shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding Series A Preferred Stock. Before taking any action which would
cause an adjustment reducing the Conversion Price below the then par value of
the shares of Common Stock issuable upon conversion of the Series A Preferred
Stock, the Corporation will take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of Common Stock at such
adjusted Conversion Price.
(iii) Upon any such conversion, no adjustment to the
Conversion Price shall be made for any declared but unpaid dividends on the
Series A Preferred Stock surrendered for conversion or on the Common Stock
delivered upon conversion.
(iv) All shares of Series A Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights, if
any, to receive notices and to vote, shall immediately cease and terminate on
the Conversion Date, except only the right of the holders thereof to receive
shares of Common Stock in exchange therefor and payment of any dividends
declared but unpaid thereon. Any shares of Series A Preferred Stock so converted
shall be retired and cancelled and shall not be reissued, and the Corporation
(without the need for stockholder action) may from time to time take such
appropriate action as may be necessary to reduce the authorized number of shares
of Series A Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other taxes that
may be payable in respect of any issuance or delivery of shares of
-5-
<PAGE>
Common Stock upon conversion of shares of Series A Preferred Stock pursuant to
this Section 4. The Corporation shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock in a name other than that in which the shares
of Series A Preferred Stock so converted were registered, and no such issuance
or delivery shall be made unless and until the person or entity requesting such
issuance has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
(d) Adjustments to Conversion Price for Diluting Issues:
---------------------------------------------------
(i) Special Definitions. For purposes of this Subsection 4(d),
-------------------
the following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to
------
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities.
(B) "Original Issue Date" shall mean the date on which a
-------------------
share of Series A Preferred Stock was first issued.
(C) "Convertible Securities" shall mean any evidences of
----------------------
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all shares
---------------------------------
of Common Stock issued (or, pursuant to Subsection 4(d)(iii) below, deemed to be
issued) by the Corporation after the Original Issue Date, other than:
(I) shares of Common Stock issued or issuable as a
dividend or other distribution on Series A
Preferred Stock;
(II) shares of Common Stock issued or issuable by reason
of a dividend or other distribution on shares of
Common Stock that is covered by Subsection 4(e) or
4(f) below;
(III) shares of Common Stock issued or issuable upon
conversion of those shares of Series A Preferred
Stock sold pursuant to the Series A Preferred Stock
Purchase Agreement dated as of February 19, 1998,
as the same may be amended from time to time;
-6-
<PAGE>
(IV) up to 2,525,000 shares of Common Stock (subject to
appropriate adjustment for stock splits, stock
dividends, combinations and other similar
recapitalizations affecting such shares), plus such
additional number of shares as may be approved by a
majority of the non-employee members of the Board
of Directors of the Corporation, issued or issuable
to employees or directors of, or consultants to,
the Corporation; and
(V) shares of Common Stock issued to equipment lessors,
as approved by a majority of the non-employee
members of the Board of Directors of the
Corporation.
(ii) No Adjustment of Conversion Price. No adjustment in the
---------------------------------
number of shares of Common Stock into which the Series A Preferred Stock is
convertible shall be made (a) unless the consideration per share (determined
pursuant to Subsection 4(d)(v)) for an Additional Share of Common Stock issued
or deemed to be issued by the Corporation is less than the applicable Conversion
Price in effect on the date of, and immediately prior to, the issue of such
Additional Shares, or (b) if prior to or within 60 days subsequent to such
issuance, the Corporation receives written notice from the holders of at least
66 2/3% of the then outstanding shares of Series A Preferred Stock, agreeing
that no such adjustment shall be made as the result of the issuance of
Additional Shares of Common Stock.
(iii) Issue of Securities Deemed Issue of Additional Shares
---------------------------------------------- ------
of Common Stock.
---------------
If the Corporation at any time or from time to time after the Original
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares of Common Stock (as set forth in the instrument relating thereto
without regard to any provision contained therein for a subsequent adjustment of
such number) issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Subsection 4(d)(v) hereof)
of such Additional Shares of Common Stock would be less than the applicable
Conversion Price in effect on the date of and immediately prior to
-7-
<PAGE>
such issue, or such record date, as the case may be, and provided further that
in any such case in which Additional Shares of Common Stock are deemed to be
issued:
(A) No further adjustment in the Conversion Price shall be made upon
the subsequent issue of Convertible Securities or shares of Common Stock upon
the exercise of such Options or conversion or exchange of such Convertible
Securities;
(B) If such Options or Convertible Securities by their terms provide,
with the passage of time or otherwise, for any increase or decrease in the
consideration payable to the Corporation, upon the exercise, conversion or
exchange thereof, the Conversion Price computed upon the original issue thereof
(or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase or decrease insofar
as it affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(C) Upon the expiration or termination of any unexercised Option, the
Conversion Price shall not be readjusted, but the Additional Shares of Common
Stock deemed issued as the result of the original issue of such Option shall not
be deemed issued for the purposes of any subsequent adjustment of the Conversion
Price;
(D) In the event of any change in the number of shares of Common Stock
issuable upon the exercise, conversion or exchange of any Option or Convertible
Security, including, but not limited to, a change resulting from the anti-
dilution provisions thereof, the Conversion Price then in effect shall forthwith
be readjusted to such Conversion Price as would have obtained had the adjustment
which was made upon the issuance of such Option or Convertible Security not
exercised or converted prior to such change been made upon the basis of such
change; and
(E) No readjustment pursuant to clause (B) or (D) above shall have the
effect of increasing the Conversion Price to an amount which exceeds the lower
of (i) the Conversion Price on the original adjustment date, or (ii) the
Conversion Price that would have resulted from any issuances of Additional
Shares of Common Stock between the original adjustment date and such
readjustment date.
In the event the Corporation, after the Original Issue Date, amends any
Options or Convertible Securities (whether such Options or Convertible
Securities were outstanding on the Original Issue Date or were issued after the
Original Issue Date) to increase the number of shares issuable thereunder or
decrease the consideration to be paid upon exercise or conversion thereof, then
such Options or
-8-
<PAGE>
Convertible Securities, as so amended, shall be deemed to have been issued
after the Original Issue Date and the provisions of this Subsection 4(d)(iii)
shall apply.
(iv) Adjustment of Conversion Price Upon Issuance of Additional
-------------------------------------------- -------------
Shares of Common Stock.
----------------------
In the event the Corporation shall at any time after the Original Issue
Date issue Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to Subsection 4(d)(iii), but excluding
shares issued as a stock split or combination as provided in Subsection 4(e) or
upon a dividend or distribution as provided in Subsection 4(f)), without
consideration or for a consideration per share less than the applicable
Conversion Price in effect on the date of and immediately prior to such issue,
then and in such event, such Conversion Price shall be reduced, concurrently
with such issue, to a price (calculated to the nearest cent) determined by
multiplying such Conversion Price by a fraction, (A) the numerator of which
shall be (1) the number of shares of Common Stock outstanding immediately prior
to such issue plus (2) the number of shares of Common Stock which the aggregate
consideration received or to be received by the Corporation for the total number
of Additional Shares of Common Stock so issued would purchase at such Conversion
Price; and (B) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; provided that, (i) for the purpose
-------- ----
of this Subsection 4(d)(iv), all shares of Common Stock issuable upon exercise
or conversion of Options or Convertible Securities outstanding immediately prior
to such issue shall be deemed to be outstanding, and (ii) for the purpose of
this Subsection 4(d)(iv), the number of shares of Common Stock deemed issuable
upon conversion of such outstanding Convertible Securities shall not give effect
to any adjustments to the conversion price or conversion rate of such
Convertible Securities resulting from the issuance of Additional Shares of
Common Stock that is the subject of this calculation.
(v) Determination of Consideration. For purposes of this Subsection
------------------------------
4(d), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
-----------------
(I) insofar as it consists of cash, be computed at the
aggregate of cash received by the Corporation, excluding amounts paid or payable
for accrued interest;
(II) insofar as it consists of property other than cash,
be computed at the fair market value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
-9-
<PAGE>
(III) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (I) and (II) above,
as determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The consideration
----------------------------------
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Subsection 4(d)(iii), relating to Options
and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable by
the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(vi) Multiple Closing Dates. In the event the Corporation shall
----------------------
issue on more than one date Additional Shares of Common Stock which are
comprised of shares of the same series or class of Convertible Securities, and
such issuance dates occur within a period of no more than 120 days, then, upon
the final such issuance, the Conversion Price shall be adjusted to give effect
to all such issuances as if they occurred on the date of the final such issuance
(and without giving effect to any adjustments as a result of such prior
issuances within such period).
(e) Adjustment for Stock Splits and Combinations. If the Corporation
--------------------------------------------
shall at any time or from time to time after the Original Issue Date effect a
subdivision of the outstanding Common Stock, the Conversion Price then in effect
immediately before that subdivision shall be proportionately decreased. If the
Corporation shall at any time or from time to time after the Original Issue Date
combine the outstanding shares of Common Stock, the Conversion Price then in
effect immediately before the combination shall be proportionately increased.
Any adjustment under this paragraph shall become effective at the close of
business on the date the subdivision or combination becomes effective.
-10-
<PAGE>
(f) Adjustment for Certain Dividends and Distributions. In the event
--------------------------------------------------
the Corporation at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Conversion
Price for the Series A Preferred Stock then in effect shall be decreased as of
the time of such issuance or, in the event such a record date shall have been
fixed, as of the close of business on such record date, by multiplying the
Conversion Price for the Series A Preferred Stock then in effect by a fraction:
(1) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend
or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price for the Series A Preferred Stock shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Conversion Price for the Series A Preferred Stock shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions; and provided further, however, that no such
adjustment shall be made if the holders of Series A Preferred Stock
simultaneously receive a dividend or other distribution of shares of Common
Stock in a number equal to the number of shares of Common Stock as they would
have received if all outstanding shares of Series A Preferred Stock had been
converted into Common Stock on the date of such event.
(g) Adjustments for Other Dividends and Distributions. In the event
-------------------------------------------------
the Corporation at any time or from time to time after the Original Issue Date
for the Series A Preferred Stock shall make or issue, or fix a record date for
the determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation other than shares of
Common Stock, then and in each such event provision shall be made so that the
holders of the Series A Preferred Stock shall receive upon conversion thereof in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Corporation that they would have received had the
Series A Preferred Stock been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such event to
and including the conversion date, retained such securities receivable by them
as aforesaid during such period, giving
-11-
<PAGE>
application to all adjustments called for during such period under this
paragraph with respect to the rights of the holders of the Series A Preferred
Stock; and provided further, however, that no such adjustment shall be made if
the holders of Series A Preferred Stock simultaneously receive a dividend or
other distribution of such securities in an amount equal to the amount of such
securities as they would have received if all outstanding shares of Series A
Preferred Stock had been converted into Common Stock on the date of such event.
(h) Adjustment for Reclassification, Exchange, or Substitution. If
--------------------------------------------- ------------
the Common Stock issuable upon the conversion of the Series A Preferred Stock
shall be changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification, or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for above, or a reorganization, merger, consolidation, or sale of
assets provided for below), then and in each such event the holder of each such
share of Series A Preferred Stock shall have the right thereafter to convert
such share into the kind and amount of shares of stock and other securities and
property receivable, upon such reorganization, reclassification, or other
change, by holders of the number of shares of Common Stock into which such
shares of Series A Preferred Stock might have been converted immediately prior
to such reorganization, reclassification, or change, all subject to further
adjustment as provided herein.
(i) Adjustment for Merger or Reorganization, etc. In case of any
--------------------------------------------
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale which is covered by
Subsection 2(c)), each share of Series A Preferred Stock shall thereafter be
convertible (or shall be converted into a security which shall be convertible)
into the kind and amount of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Series A Preferred Stock would have been
entitled upon such consolidation, merger or sale; and, in such case, appropriate
adjustment (as determined in good faith by the Board of Directors) shall be made
in the application of the provisions in this Section 4 set forth with respect to
the rights and interest thereafter of the holders of the Series A Preferred
Stock, to the end that the provisions set forth in this Section 4 (including
provisions with respect to changes in and other adjustments of the Conversion
Price) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the conversion of the Series A Preferred Stock.
(j) No Impairment. The Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to
-12-
<PAGE>
be observed or performed hereunder by the Corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 4
and in the taking of all such action as may be necessary or appropriate in order
to protect the Conversion Rights of the holders of the Series A Preferred Stock
against impairment.
(k) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Conversion Price pursuant to this Section 4,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a similar certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price then in effect, and (iii) the number of
shares of Common Stock and the amount, if any, of other property which then
would be received upon the conversion of Series A Preferred Stock.
(l) Notice of Record Date. In the event:
---------------------
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock
or other securities of the Corporation;
(ii) that the Corporation subdivides or combines its outstanding
shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its
outstanding shares of Common Stock or a stock dividend or
stock distribution thereon), or of any consolidation or
merger of the Corporation into or with another corporation,
or of the sale of all or substantially all of the assets of
the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation or
winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series A Preferred Stock, and shall cause to
be mailed to the holders of the Series A Preferred Stock at their last addresses
as shown on the records of the Corporation or such transfer agent, at least ten
days prior to the date specified in (A) below or twenty days before the date
specified in (B) below, a notice stating
-13-
<PAGE>
(A) the record date of such dividend, distribution, subdivision or
combination, or, if a record is not to be taken, the date as of
which the holders of Common Stock of record to be entitled to
such dividend, distribution, subdivision or combination are to be
determined, or
(B) the date on which such reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up is expected to
become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property
deliverable upon such reclassification, consolidation, merger,
sale, dissolution or winding up.
5. Mandatory Conversion.
--------------------
(a) Upon the earlier of (x) the closing of the sale of shares of
Common Stock, at a price of at least $5.00 per share (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other similar
recapitalizations affecting such shares), in a firm commitment underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, resulting in at least $10,000,000 of
proceeds to the Corporation (net of the underwriting discounts or commissions
and offering expenses) and (y) the first date on which at least 3,750,000 shares
of Series A Preferred Stock have been converted into Common Stock pursuant to
Section 5 above (the "Mandatory Conversion Date"), (i) all outstanding shares of
Series A Preferred Stock shall automatically be converted into shares of Common
Stock, at the then effective conversion rate, and (ii) all provisions hereof
included under the caption "Series A Convertible Preferred Stock", and all
references herein to the Series A Preferred Stock, shall be deleted and shall be
of no further force or effect.
(b) All holders of record of shares of Series A Preferred Stock shall
be given written notice of the Mandatory Conversion Date and the place
designated for mandatory conversion of all such shares of Series A Preferred
Stock, pursuant to this Section 5. Such notice need not be given in advance of
the occurrence of a Mandatory Conversion Date. Such notice shall be sent by
first class or registered mail, postage prepaid, to each record holder of Series
A Preferred Stock at such holder's address last shown on the records of the
transfer agent for the Series A Preferred Stock (or the records of the
Corporation, if it serves as its own transfer agent). Upon receipt of such
notice, each holder of shares of Series A Preferred Stock shall surrender his or
its certificate or certificates for all such shares to the Corporation at the
place designated in such notice, and shall thereafter receive certificates for
the number of shares of Common Stock to which such holder is entitled pursuant
to this Section 5. On the Mandatory Conversion Date, all rights
-14-
<PAGE>
with respect to the Series A Preferred Stock so converted, including the rights,
if any, to receive notices and vote (other than as a holder of Common Stock)
will terminate, except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefor, to receive certificates for the
number of shares of Common Stock into which such Series A Preferred Stock has
been converted, and payment of any declared but unpaid dividends thereon. If so
required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
by his or its attorney duly authorized in writing. As soon as practicable after
the Mandatory Conversion Date and the surrender of the certificate or
certificates for Series A Preferred Stock, the Corporation shall cause to be
issued and delivered to such holder, or on his or its written order, a
certificate or certificates for the number of full shares of Common Stock
issuable on such conversion in accordance with the provisions hereof and cash as
provided in Subsection 4(b) in respect of any fraction of a share of Common
Stock otherwise issuable upon such conversion.
(c) All certificates evidencing shares of Series A Preferred Stock
which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Date, be deemed
to have been retired and cancelled and the shares of Series A Preferred Stock
represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. The Corporation may thereafter take such
appropriate action (without the need for stockholder action) as may be necessary
to reduce the authorized Series A Preferred Stock accordingly.
6. Redemption.
----------
(a) The Corporation will, subject to the conditions set forth below,
on February 15, 2003, February 15, 2004 and February 15, 2005 (each, a
"Mandatory Redemption Date"), upon receipt not less than 30 nor more than 120
days prior to the applicable Mandatory Redemption Date of written request(s) for
redemption from holders of at least 66 2/3% of the shares of Series A Preferred
Stock then outstanding (a "Series A Redemption Request"), redeem from each
holder of shares of Series A Preferred Stock, at a price equal to $0.91 per
share (subject to appropriate adjustment in the event of any dividend, stock
split, combination or other similar recapitalization affecting such shares),
plus any declared but unpaid dividends thereon (the "Mandatory Redemption
Price"), the following respective portions of the number of shares of Series A
Preferred Stock held by such holder set forth opposite the applicable Mandatory
Redemption Date:
-15-
<PAGE>
Portion of then
Outstanding Shares of
Mandatory Series A Preferred Stock
Redemption Date To Be Redeemed
--------------- ------------------------
February 15, 2003 33 1/3%
February 15, 2004 50%
February 15, 2005 All Shares then held
The Corporation shall provide notice of its redemption obligations under this
Section 6, by first class or registered mail, postage prepaid, to each holder of
record of Series A Preferred Stock at the address for such holder last shown on
the records of the transfer agent therefor (or the records of the Corporation,
if it serves as its own transfer agent), not less than 120 nor more than 180
days prior to the applicable Mandatory Redemption Date. The Corporation shall
provide notice of any Series A Redemption Request, specifying the time and place
of redemption and the Mandatory Redemption Price, by first class or registered
mail, postage prepaid, to each holder of record of Series A Preferred Stock at
the address for such holder last shown on the records of the transfer agent
therefor (or the records of the Corporation, if it serves as its own transfer
agent), not less than 20 days prior to the Mandatory Redemption Date.
(b) If the funds of the Corporation legally available for redemption
of Series A Preferred Stock on any Mandatory Redemption Date are insufficient to
redeem the number of shares of Series A Preferred Stock required under this
Section 6 to be redeemed on such date, those funds which are legally available
will be used to redeem the maximum possible number of such shares of Series A
Preferred Stock ratably on the basis of the number of shares of Series A
Preferred Stock which would be redeemed on such date if the funds of the
Corporation legally available therefor had been sufficient to redeem all shares
of Series A Preferred Stock required to be redeemed on such date. At any time
thereafter when additional funds of the Corporation become legally available for
the redemption of Series A Preferred Stock, such funds will be used, at the end
of the next succeeding fiscal quarter, to redeem, to the extent of the available
funds, the balance of the shares which the Corporation was theretofore obligated
to redeem.
(c) Unless there shall have been a default in payment of the
Mandatory Redemption Price, on such Mandatory Redemption Date all rights of each
holder of shares of Series A Preferred Stock as a stockholder of the Corporation
by reason of the ownership of such shares will cease, except the right to
receive the Mandatory Redemption Price for such shares, without interest, upon
presentation and surrender of the certificate representing such shares, and such
shares will not from and after such Mandatory Redemption Date be deemed to be
outstanding.
-16-
<PAGE>
(d) Any Series A Preferred Stock redeemed pursuant to this Section 6
will be cancelled and will not under any circumstances be reissued, sold or
transferred and the Corporation may from time to time take such appropriate
action as may be necessary to reduce the authorized number of shares of Series A
Preferred Stock accordingly.
7. Negative Covenants.
------------------
(a) The Corporation shall not amend, alter or repeal the preferences,
special rights or other powers of the Series A Preferred Stock so as to affect
adversely the Series A Preferred Stock, without the written consent or
affirmative vote of the holders of at least 66 2/3% of the then outstanding
shares of Series A Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class. For this
purpose, without limiting the generality of the foregoing, the authorization of
any shares of capital stock with preference or priority over the Series A
Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall be deemed to affect adversely the Series A Preferred Stock and the
authorization of any shares of capital stock on a parity with Series A Preferred
Stock as to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall not be deemed to
affect adversely the Series A Preferred Stock.
(b) So long as at least 1,375,000 shares of Series A Preferred Stock
(subject to appropriate adjustment in the event of any dividend, stock split,
combination or other similar recapitalization affecting such shares) are
outstanding (or such lesser number of shares of Series A Preferred Stock as are
then outstanding if the Corporation has, prior to such time, failed to redeem
shares of Series A Preferred Stock when such redemption was due in accordance
with Section 6 above), the Corporation shall not, without the prior written
consent of the holders of at least 66 2/3% of the then outstanding shares of
Series A Preferred Stock:
(i) adopt any amendment to the Corporation's Certificate of
Incorporation adversely affecting the Series A Preferred Stock;
(ii) amend the Corporation's By-laws in a manner adverse to the
holders of Series A Preferred Stock;
(iii) declare or pay any dividends on Common Stock other than
dividends payable solely in Common Stock;
(iv) repurchase shares of Common Stock at a price greater than
the price at which they were originally issued;
-17-
<PAGE>
(v) liquidate, dissolve or wind-up the Corporation;
(vi) make (or permit any subsidiary to make) any loan or
advance to any person, including without limitation, any employee or director of
the Corporation or any subsidiary, except (A) advances and similar expenditures
in the ordinary course of business or (B) as approved by the Board of Directors;
or
(vii) (A) merge with or into or consolidate with any other
corporation (other than a merger of consolidation in which the stockholders of
the Company immediately prior thereto own at least 80% of the outstanding voting
stock of the surviving or acquiring corporation), (B) sell, lease, or otherwise
dispose of all or substantially all, or a Significant Portion (as defined
below), of its properties or assets (for this purpose, "Significant Portion"
shall mean properties or assets with a fair market value equal to more than 35%
of the book value of the Company's total properties or assets as of the end of
the most recent fiscal quarter), or (C) acquire all or substantially all of the
properties or assets of any other corporation or entity (except for
consideration of less than 20% of the Corporation's consolidated net worth as of
the end of the prior fiscal quarter.
8. Waiver. Any of the rights of the holders of Series A Preferred Stock
------
set forth herein may be waived by the affirmative vote of the holders of more
than 66 2/3% of the shares of Series A Preferred Stock then outstanding.
-18-
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designations to be signed by its President this 19th day of February, 1998.
Sycamore Networks, Inc.
By: /s/ Gururaj Deshpande
------------------------------
Gururaj Deshpande
President
-19-
<PAGE>
CERTIFICATE OF INCREASE
TO
CERTIFICATE OF DESIGNATIONS
OF
SYCAMORE NETWORKS, INC.
March 31, 1998
Sycamore Networks, Inc., a Delaware corporation (the "Corporation"),
pursuant to authority conferred on the Board of Directors of the Corporation by
the Certificate of Incorporation and in accordance with the provisions of
Section 151(g) of the general Corporation Law of the State of Delaware,
certifies that the Board of Directors of the Corporation has duly adopted the
following resolution:
RESOLVED: That the number of shares of Preferred Stock of the Corporation
- --------
designated as "Series A Convertible Preferred Stock" be, and
hereby is, increased from 5,830,000 shares to 6,380,000 shares,
and the Certificate of Designations designating the Series A
Convertible Preferred Stock is hereby amended accordingly.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Increase
to be signed by its President on this 31st day of March, 1998.
SYCAMORE NETWORKS, INC.
By: /s/ Gururaj Deshpande
--------------------------------
Gururaj Deshpande
President
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SYCAMORE NETWORKS, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
________________________________________________________________________________
Sycamore Networks, Inc. (hereinafter called the "Corporation"), organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
At a meeting of the Board of Directors of the Corporation, a resolution was
duly adopted pursuant to Section 242 of the General Corporation Law of the State
of Delaware, setting forth an amendment to the Certificate of Incorporation of
the Corporation declaring said amendment to be advisable. The stockholders of
the Corporation duly approved said proposed amendment by written consent in
accordance with Sections 228 and 242 of the General Corporation Law of the State
of Delaware. The resolution setting forth the amendment is as follows:
RESOLVED: That the first paragraph of Article FOURTH of the Certificate of
- --------
Incorporation of the Corporation be and hereby is deleted and the
following paragraph is inserted in lieu thereof:
"FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is
29,500,000 shares, consisting of (i) 20,000,000 shares of
Common Stock, $.001 par value per share ("Common Stock"),
and (ii) 9,500,000 shares of Preferred Stock, $.01 par value
per share ("Preferred Stock")."
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its President
this 19 of October, 1998.
SYCAMORE NETWORKS, INC.
By: /s/ Gururaj Deshpande
-------------------------------
Gururaj Deshpande
President
-2-
<PAGE>
CERTIFICATE OF INCREASE
TO
CERTIFICATE OF DESIGNATIONS
OF
SYCAMORE NETWORKS, INC.
October 19, 1998
Sycamore Networks, Inc., a Delaware corporation (the "Corporation"),
pursuant to authority conferred on the Board of Directors of the Corporation by
the Certificate of Incorporation and in accordance with the provisions of
Section 151(g) of the General Corporation Law of the State of Delaware,
certifies that the Board of Directors of the Corporation has duly adopted the
following resolution:
RESOLVED: That the number of shares of Preferred Stock of the Corporation
- --------
designated as "Series A Convertible Preferred Stock" be, and
hereby is, increased from 6,380,000 shares to 9,155,000 shares,
and the Certificate of Designations designating the Series A
Convertible Preferred Stock is hereby amended accordingly.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Increase
to be signed by its President on this 19 day of October, 1998.
SYCAMORE NETWORKS, INC.
By: /s/ Gururaj Deshpande
-----------------------------------
Gururaj Deshpande
President
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SYCAMORE NETWORKS,INC.
Sycamore Networks, Inc. (the "Corporation"), organized and existing under
and by virtue of the General Law of the State of Delaware, does hereby certify
as follows:
The Board of Directors of the Corporation duly adopted, pursuant to Section
242 of the General Corporation Law of Delaware, a resolution setting forth an
amendment to the Certificate of Incorporation of the Corporation and declaring
said amendment to be advisable. The stockholders of the Corporation duly
approved said proposed amendment in accordance with Section 242 of the General
Corporation Law of the State of Delaware by written consent in accordance with
Sections 228 and 242 of the General Corporation Law of the State of Delaware,
and written notice of such consent has been given to all stockholders who have
not consented in writing to said amendment. The resolution setting forth the
amendment is as follows:
RESOLVED: That Article FOURTH of the Certificate of Incorporation of
--------
the Corporation be and hereby is deleted in its entirety and the following
Article FOURTH is inserted in lieu thereof:
FOURTH: The total number of shares of all classes of stock which the
------
Corporation shall have authority to issue is 40,000,000 shares, consisting
of (i) 25,000,000 shares of Common Stock, $.001 par value per share
("Common Stock"), and (ii) 15,000,000 shares of Preferred Stock, $.01 par
value per share ("Preferred Stock"), 9,155,000 shares of which have been
designated as Series A Convertible Preferred Stock ("Series A Preferred
Stock") and 4,000,000 shares of which have been designated as Series B
Convertible Preferred Stock ("Series B Preferred Stock").
<PAGE>
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Corporation.
A. Common Stock.
------------
1.General. 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
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2.Voting. The holders of the Common Stock are entitled to one vote for
------
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3.Dividends. Dividends may be declared and paid on the Common Stock from
---------
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4.Liquidation. Upon the dissolution or liquidation of the Corporation,
-----------
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. Preferred Stock.
---------------
Preferred Stock may be issued from time to time in one or more series, each
of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the
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<PAGE>
creation of any such series, by resolution or resolutions providing for the
issue of the shares thereof, to determine and fix such voting powers, full or
limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of Delaware. Without limiting
the generality of the foregoing, the resolutions providing for issuance of any
series of Preferred Stock may provide that such series shall be superior or rank
equally or be junior to the Preferred Stock of any other series to the extent
permitted by law. Except as otherwise provided in this Certificate of
Incorporation, no vote of the holders of the Preferred Stock or Common Stock
shall be a prerequisite to the designation or issuance of any shares of any
series of the Preferred Stock authorized by and complying with the conditions of
this Certificate of Incorporation, the right to have such vote being expressly
waived by all present and future holders of the capital stock of the
Corporation.
C. Series A Preferred Stock and Series B Preferred Stock.
-----------------------------------------------------
1. Dividends.
---------
(a) The Corporation shall not declare or pay any dividends or
distributions (as defined below) on shares of Common Stock until the holders of
the Series A Preferred Stock and the Series B Preferred Stock then outstanding
shall have first received, or simultaneously receive, a like distribution on
each outstanding share of Series A Preferred Stock and Series B Preferred Stock,
in an amount at least equal to the product of (i) the per share amount, if any,
of the dividends or distributions to be declared, paid or set aside for the
Common Stock, multiplied by (ii) the number of whole shares of Common Stock into
which such share of Series A Preferred Stock or Series B Preferred Stock, as the
case may be, is convertible as of the record date for such dividend or
distribution.
(b) For purposes of this Section 1, "distribution" shall mean the
transfer of cash or property without consideration, whether by way of dividend
or otherwise, payable other than in Common Stock or other securities of the
Corporation, or the purchase or redemption of shares of the Corporation (other
than repurchases of Common Stock held by employees or directors of, or
consultants to, the Corporation upon termination of their employment or services
pursuant to agreements approved by the Board of Directors providing for such
repurchase at a price equal to the original issue price of such shares) for cash
or property, including any such transfer, purchase or redemption by a subsidiary
of the Corporation.
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<PAGE>
2. Liquidation, Dissolution or Winding Up; Certain Mergers,
-------------------------------------------------------
Consolidations and Asset Sales.
- ------------------------------
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred Stock and Series B Preferred Stock then outstanding shall be entitled
to be paid out of the assets of the Corporation available for distribution to
its stockholders, after and subject to the payment in full of all amounts
required to be distributed to the holders of any other class or series of stock
of the Corporation ranking on liquidation prior and in preference to the Series
A Preferred Stock and the Series B Preferred Stock, but before any payment shall
be made to the holders of Common Stock or any other class or series of stock
ranking on liquidation junior to the Series A Preferred Stock and the Series B
Preferred Stock by reason of their ownership thereof, an amount equal to $0.91
per share in the case of the Series A Preferred Stock and $3.50 per share in the
case of the Series B Preferred Stock (subject to appropriate adjustment in the
event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares), plus any dividends declared but unpaid
on such shares. If upon any such liquidation, dissolution or winding up of the
Corporation the remaining assets of the Corporation available for distribution
to its stockholders shall be insufficient to pay the holders of shares of Series
A Preferred Stock and Series B Preferred Stock the full amount to which they
shall be entitled, the holders of shares of Series A Preferred Stock and Series
B Preferred Stock and any class or series of stock ranking on liquidation on a
parity with the Series A Preferred Stock and Series B Preferred Stock shall
share ratably in any distribution of the remaining assets and funds of the
Corporation in proportion to the respective amounts which would otherwise be
payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in full.
(b) After the payment of all preferential amounts required to be paid
to the holders of any class or series of stock of the Corporation ranking on
liquidation prior to and in preference to the Common Stock, upon the
dissolution, liquidation or winding up of the Corporation, the remaining assets
and funds of the Corporation available for distribution to its stockholders
shall be distributed among the holders of shares of Common Stock.
(c) Any (i) merger or consolidation which results in the voting
securities of the Corporation outstanding immediately prior thereto representing
immediately thereafter (either by remaining outstanding or by being converted
into voting securities of the surviving or acquiring entity) less than a
majority of the combined voting power of the voting securities of the
Corporation or such surviving or acquiring entity outstanding immediately after
such merger or consolidation, (ii) sale of all or substantially all of the
assets of the Corporation or (iii) sale of shares of capital stock of the
Corporation, in a single transaction or series of related
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<PAGE>
transactions, representing at least 80% of the of the voting power of the voting
securities of the Corporation, shall be deemed to be a liquidation of the
Corporation, and all consideration payable to the stockholders of the
Corporation (in the case of a merger or consolidation), or all consideration
payable to the Corporation (net of obligations owed by the Corporation),
together with all other available assets of the Corporation (in the case of an
asset sale), shall be distributed to the holders of capital stock of the
Corporation in accordance with Subsections 2(a) and 2(b) above. The Corporation
shall promptly provide to the holders of shares of Series A Preferred Stock and
Series B Preferred Stock such information concerning the terms of such merger,
consolidation or asset sale and the value of the assets of the Corporation as
may reasonably be requested by the holders of Series A Preferred Stock and
Series B Preferred Stock. If applicable, the Corporation shall cause the
agreement or plan of merger or consolidation to provide for a rate at which the
shares of capital stock of the Corporation are converted into or exchanged for
cash, new securities or other property which gives effect to this provision. The
amount deemed distributed to the holders of Series A Preferred Stock and Series
B Preferred Stock upon any such merger or consolidation shall be the cash or the
value of the property, rights or securities distributed to such holders by the
Corporation and/or by the acquiring person, firm or other entity. The value of
such property, rights or other securities shall be determined in good faith by
the Board of Directors of the Corporation.
3. Voting.
------
(a) Each holder of outstanding shares of Series A Preferred Stock and
Series B Preferred Stock shall be entitled to the number of votes equal to the
number of whole shares of Common Stock into which the shares of Series A
Preferred Stock and Series B Preferred Stock held by such holder are convertible
(as adjusted from time to time pursuant to Section 4 hereof) as of the record
date, at each meeting of stockholders of the Corporation (and written actions of
stockholders in lieu of meetings) with respect to any and all matters presented
to the stockholders of the Corporation for their action or consideration.
Except as provided by law or by the provisions of Section 3(b) or Section 7
below or by the provisions establishing any other series of stock, holders of
Series A Preferred Stock and Series B Preferred Stock and of any other
outstanding series of stock shall vote together with the holders of Common Stock
as a single class.
(b) For so long as at least 1,375,000 shares of Series A Preferred
Stock and Series B Preferred Stock (subject to appropriate adjustment for stock
splits, stock dividends, combinations and other similar recapitalizations
affecting such shares) are outstanding (or such lesser number of shares of
Series A Preferred Stock and Series B Preferred Stock as are then outstanding if
the Corporation has, prior to such time, failed to redeem shares of Series A
Preferred Stock and Series B Preferred Stock when such redemption was due in
accordance with Section 6 below), the holders of record of the shares of Series
A Preferred Stock and Series B Preferred Stock,
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<PAGE>
exclusively and as a separate class, shall be entitled to elect two members of
the Board of Directors of the Corporation. At any meeting held for the purpose
of electing directors, the presence in person or by proxy of the holders of a
majority of the shares of Series A Preferred Stock and Series B Preferred Stock
then outstanding shall constitute a quorum of the Series A Preferred Stock and
the Series B Preferred Stock for the purpose of electing directors by holders of
the Series A Preferred Stock and the Series B Preferred Stock. A vacancy in any
directorship filled by the holders of Series A Preferred Stock and Series B
Preferred Stock shall be filled only by vote or written consent in lieu of a
meeting of the holders of the Series A Preferred Stock and the Series B
Preferred Stock.
4. Optional Conversion. The holders of the Series A Preferred Stock and
-------------------
Series B Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock shall
----------------
be convertible, at the option of the holder thereof, at any time and from time
to time, and without the payment of additional consideration by the holder
thereof, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing $0.91 by the Series A Conversion Price (as defined
below) in effect at the time of conversion. The "Series A Conversion Price"
shall initially be $0.91. Such Series A Conversion Price, and the rate at which
shares of Series A Preferred Stock may be converted into shares of Common Stock,
shall be subject to adjustment as provided below. Each share of Series B
Preferred Stock shall be convertible, at the option of the holder thereof at any
time and from time to time and without the payment of additional consideration
by the holder thereof, into such number of fully paid and nonassessable shares
of Common Stock as is determined by dividing $3.50 by the Series B Conversion
Price (as defined below) in effect at the time of conversion. The "Series B
Conversion Price" shall initially be $3.50. Such Series B Conversion Price, and
the rate at which shares of Series B Preferred Stock may be converted into
shares of Common Stock, shall be subject to adjustment as provided below.
In the event of a notice of redemption of any shares of Series A Preferred
Stock or Series B Preferred Stock pursuant to Section 6 hereof, the Conversion
Rights of the shares designated for redemption shall terminate at the close of
business on the first full day preceding the date fixed for redemption, unless
the redemption price is not paid when due, in which case the Conversion Rights
for such shares shall continue until such price is paid in full. In the event of
a liquidation of the Corporation (or deemed liquidation under Section 2(c)
hereof), the Conversion Rights shall terminate at the close of business on the
first full business day preceding the date fixed for the payment of any amounts
distributable on liquidation (or deemed liquidation under Section 2(c) hereof)
to the holders of such series of Preferred Stock.
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<PAGE>
(b) Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issued upon conversion of the Series A Preferred Stock or the Series B Preferred
Stock. In lieu of any fractional shares to which the holder would otherwise be
entitled, the Corporation shall pay cash equal to such fraction multiplied by
the then effective Series A Conversion Price or Series B Conversion Price, as
the case may be.
(c) Mechanics of Conversion.
-----------------------
(i) In order for a holder of Series A Preferred Stock or
Series B Preferred Stock to convert shares of Series A Preferred Stock or Series
B Preferred Stock into shares of Common Stock, such holder shall surrender the
certificate or certificates for such shares of Preferred Stock, at the office of
the transfer agent for such shares of Preferred Stock (or at the principal
office of the Corporation if the Corporation serves as its own transfer agent),
together with written notice that such holder elects to convert all or any
number of the shares of the Series A Preferred Stock or Series B Preferred Stock
represented by such certificate or certificates. Such notice shall state such
holder's name or the names of the nominees in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. If required
by the Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or his
or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
("Conversion Date"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such holder of Series A
Preferred Stock or Series B Preferred Stock, or to his or its nominees, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled, together with cash in lieu of any fraction of a
share.
(ii) The Corporation shall at all times when the Series A
Preferred Stock or the Series B Preferred Stock shall be outstanding, reserve
and keep available out of its authorized but unissued stock, for the purpose of
effecting the conversion of the Series A Preferred Stock and the Series B
Preferred Stock, such number of its duly authorized shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding Series A Preferred Stock and Series B Preferred Stock. Before taking
any action which would cause an adjustment reducing the Series A Conversion
Price or the Series B Conversion Price below the then par value of the shares of
Common Stock issuable upon conversion of the Series A Preferred Stock or the
Series B Preferred Stock, as the case may be, the Corporation will take any
corporate action which may, in the opinion of its counsel, be necessary in order
that the Corporation may validly and legally issue fully paid and nonassessable
shares of Common Stock at such adjusted Series A Conversion Price or Series B
Conversion Price.
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<PAGE>
(iii) Upon any such conversion, no adjustment to the Series
A Conversion Price or the Series B Conversion Price shall be made for any
declared but unpaid dividends on the Series A Preferred Stock or the Series B
Preferred Stock surrendered for conversion or on the Common Stock delivered upon
conversion.
(iv) All shares of Series A Preferred Stock or Series B
Preferred Stock which shall have been surrendered for conversion as herein
provided shall no longer be deemed to be outstanding and all rights with respect
to such shares, including the rights, if any, to receive notices and to vote,
shall immediately cease and terminate on the Conversion Date, except only the
right of the holders thereof to receive shares of Common Stock in exchange
therefor and payment of any dividends declared but unpaid thereon. Any shares of
Series A Preferred Stock or Series B Preferred Stock so converted shall be
retired and cancelled and shall not be reissued, and the Corporation (without
the need for stockholder action) may from time to time take such appropriate
action as may be necessary to reduce the authorized number of shares of Series A
Preferred Stock or Series B Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other
taxes that may be payable in respect of any issuance or delivery of shares of
Common Stock upon conversion of shares of Series A Preferred Stock or Series B
Preferred Stock pursuant to this Section 4. The Corporation shall not, however,
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of shares of Common Stock in a name other
than that in which the shares of Series A Preferred Stock or Series B Preferred
Stock so converted were registered, and no such issuance or delivery shall be
made unless and until the person or entity requesting such issuance has paid to
the Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(d) Adjustments to Conversion Price for Diluting Issues:
---------------------------------------------------
(i) Special Definitions. For purposes of this Subsection
-------------------
4(d), the following definitions shall apply:
(A) "Option" shall mean rights, options or
------
warrants to subscribe for, purchase or otherwise acquire Common Stock or
Convertible Securities.
(B) "Original Issue Date" shall mean the date on
-------------------
which a share of Series A Preferred Stock was first issued.
(C) "Convertible Securities" shall mean any
----------------------
evidences of indebtedness, shares or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
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<PAGE>
(D) "Additional Shares of Common Stock" shall
---------------------------------
mean all shares of Common Stock issued (or, pursuant to Subsection 4(d)(iii)
below, deemed to be issued) by the Corporation after the Original Issue Date,
other than:
(I) shares of Common Stock issued or
issuable as a dividend or other
distribution on Series A Preferred
Stock or Series B Preferred Stock;
(II) shares of Common Stock issued or
issuable by reason of a dividend
or other distribution on shares of
Common Stock that is covered by
Subsection 4(e) or 4(f) below;
(III) shares of Common Stock issued or
issuable upon conversion of those
shares of (1) Series A Preferred
Stock sold pursuant to the Series
A Preferred Stock Purchase
Agreement dated as of February 19,
1998, as the same may be amended
from time to time and (2) Series B
Preferred Stock sold pursuant to
the Series B Preferred Stock
Purchase Agreement dated as of
December 3, 1998, as the same may
be amended from time to time;
(IV) up to 4,025,000 shares of Common
Stock (subject to appropriate
adjustment for stock splits, stock
dividends, combinations and other
similar recapitalizations
affecting such shares), plus such
additional number of shares as may
be approved by a majority of the
non-employee members of the Board
of Directors of the Corporation,
issued or issuable to employees or
directors of, or consultants to,
the Corporation; and
(V) shares of Common Stock issued to
equipment lessors, as approved by
a majority of the non-employee
members of the Board of Directors
of the Corporation.
(ii) No Adjustment of Conversion Price. No adjustment in the
---------------------------------
number of shares of Common Stock into which the Series A Preferred Stock is
convertible shall be made (a) unless the consideration per share (determined
pursuant to Subsection 4(d)(v)) for an Additional Share of Common Stock issued
or deemed to
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<PAGE>
be issued by the Corporation is less than the applicable Series A Conversion
Price in effect on the date of, and immediately prior to, the issue of such
Additional Shares, or (b) if prior to or within 60 days subsequent to such
issuance, the Corporation receives written notice from the holders of at least
66 2/3% of the then outstanding shares of Series A Preferred Stock, agreeing
that no such adjustment shall be made as a result of the issuance of Additional
Shares of Common Stock. No adjustment in the number of shares of Common Stock
into which the Series B Preferred Stock is convertible shall be made (a) unless
the consideration per share (determined pursuant to Subsection 4(d)(v)) for an
Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the applicable Series B Conversion Price in effect on
the date of, and immediately prior to, the issue of such Additional Shares, or
(b) if prior to or within 60 days subsequent to such issuance, the Corporation
receives written notice from the holders of at least 66 2/3% of the then
outstanding shares of Series B Preferred Stock, agreeing that no such adjustment
shall be made as a result of the issuance of Additional Shares of Common Stock.
(iii) Issue of Securities Deemed Issue of Additional Shares
-----------------------------------------------------
of Common Stock.
- ---------------
If the Corporation at any time or from time to time after the Original
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares of Common Stock (as set forth in the instrument relating thereto
without regard to any provision contained therein for a subsequent adjustment of
such number) issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that (x)
for the purpose of adjusting the Series A Conversion Price, Additional Shares of
Common Stock shall not be deemed to have been issued unless the consideration
per share (determined pursuant to Subsection 4(d)(v) hereof) of such Additional
Shares of Common Stock would be less than the applicable Series A Conversion
Price in effect on the date of and immediately prior to such issue, or such
record date, as the case may be, and (y) for the purpose of adjusting the Series
B Conversion Price, Additional Shares of Common Stock shall not be deemed to
have been issued unless the consideration per share (determined pursuant to
Subsection 4(d)(v) hereof) of such Additional Shares of Common Stock would be
less than the applicable Series B Conversion Price in effect on the date of and
immediately prior to such issue, or such record date, as the case may be, and
provided further that in any such case in which Additional Shares of Common
Stock are deemed to be issued:
(A) No further adjustment in the Series A
Conversion Price or the Series B Conversion Price shall be made upon subsequent
issue of Convertible
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<PAGE>
Securities or shares of Common Stock upon exercise of such Options or conversion
or exchange of such Convertible Securities;
(B) If such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, upon the exercise,
conversion or exchange thereof, the Series A Conversion Price and the Series B
Conversion Price, as applicable, computed upon the original issue thereof (or
upon the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(C) Upon the expiration or termination of any
unexercised Option, the Series A Conversion Price and the Series B Conversion
Price shall not be readjusted, but the Additional Shares of Common Stock deemed
issued as the result of the original issue of such Option shall not be deemed
issued for the purposes of any subsequent adjustment of the Series A Conversion
Price or the Series B Conversion Price;
(D) In the event of any change in the number of shares
of Common Stock issuable upon the exercise, conversion or exchange of any Option
or Convertible Security, including, but not limited to, a change resulting from
the anti-dilution provisions thereof, the Series A Conversion Price and the
Series B Conversion Price then in effect shall forthwith be readjusted to such
Series A Conversion Price and the Series B Conversion Price as would have
obtained had the adjustment which was made upon the issuance of such Option or
Convertible Security not exercised or converted prior to such change been made
upon the basis of such change; and
(E) No readjustment pursuant to clause (B) or (D) above
shall have the effect of increasing the Series A Conversion Price or the Series
B Conversion Price to an amount which exceeds the lower of (i) the Series A
Conversion Price or the Series B Conversion Price, as the case may be, on the
original adjustment date, or (ii) the Series A Conversion Price or the Series B
Conversion Price that would have resulted from any issuances of Additional
Shares of Common Stock between the original adjustment date and such
readjustment date.
In the event the Corporation, after the Original Issue Date, amends any
Options or Convertible Securities (whether such Options or Convertible
Securities were outstanding on the Original Issue Date or were issued after the
Original Issue Date) to increase the number of shares issuable thereunder or
decrease the consideration to be paid upon exercise or conversion thereof, then
such Options or
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<PAGE>
Convertible Securities, as so amended, shall be deemed to have been issued after
the Original Issue Date and the provisions of this Subsection 4(d)(iii) shall
apply.
(iv) Adjustment of Conversion Price Upon Issuance of
-----------------------------------------------
Additional Shares of Common Stock.
- ---------------------------------
(A) In the event the Corporation shall at any
time after the Original Issue Date issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Subsection 4(d)(iii), but excluding shares issued as a stock split or
combination as provided in Subsection 4(e) or upon a dividend or distribution as
provided in Subsection 4(f)), without consideration or for a consideration per
share less than the applicable Series A Conversion Price in effect on the date
of and immediately prior to such issue, then and in such event, such Series A
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series A
Conversion Price by a fraction, (A) the numerator of which shall be (1) the
number of shares of Common Stock outstanding immediately prior to such issue
plus (2) the number of shares of Common Stock which the aggregate consideration
received or to be received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Series A Conversion
Price; and (B) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; provided that, (i) for the purpose
-------- ----
of this Subsection 4(d)(iv), all shares of Common Stock issuable upon exercise
or conversion of Options or Convertible Securities outstanding immediately prior
to such issue shall be deemed to be outstanding, and (ii) for the purpose of
this Subsection 4(d)(iv), the number of shares of Common Stock deemed issuable
upon conversion of such outstanding Convertible Securities shall not give effect
to any adjustments to the conversion price or conversion rate of such
Convertible Securities resulting from the issuance of Additional Shares of
Common Stock that is the subject of this calculation.
(B) In the event the Corporation shall at any time
after the Original Issue Date issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Subsection
4(d)(iii), but excluding shares issued as a stock split or combination as
provided in Subsection 4(e) or upon a dividend or distribution as provided in
Subsection 4(f)), without consideration or for a consideration per share less
than the applicable Series B Conversion Price in effect on the date of and
immediately prior to such issue, then and in such event, such Series B
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series B
Conversion Price by a fraction, (A) the numerator of which shall be (1) the
number of shares of Common Stock outstanding immediately prior to such issue
plus (2) the number of shares of Common Stock which the aggregate consideration
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<PAGE>
received or to be received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Series B Conversion
Price; and (B) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; provided that, (i) for the purpose
-------------
of this Subsection 4(d)(iv), all shares of Common Stock issuable upon exercise
or conversion of Options or Convertible Securities outstanding immediately prior
to such issue shall be deemed to be outstanding, and (ii) for the purpose of
this Subsection 4(d)(iv), the number of shares of Common Stock deemed issuable
upon conversion of such outstanding Convertible Securities shall not give effect
to any adjustments to the conversion price or conversion rate of such
Convertible Securities resulting from the issuance of Additional Shares of
Common Stock that is the subject of this calculation.
(v) Determination of Consideration. For purposes of this
------------------------------
Subsection 4(d), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
-----------------
(I) insofar as it consists of cash, be
computed at the aggregate of cash received by the Corporation, excluding amounts
paid or payable for accrued interest;
(II) insofar as it consists of property
other than cash, be computed at the fair market value thereof at the time of
such issue, as determined in good faith by the Board of Directors; and
(III) in the event Additional Shares of
Common Stock are issued together with other shares or securities or other assets
of the Corporation for consideration which covers both, be the proportion of
such consideration so received, computed as provided in clauses (I) and (II)
above, as determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The
----------------------------------
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Subsection 4(d)(iii),
relating to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received
or receivable by the Corporation as consideration for the issue of such Options
or Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration)
-13-
<PAGE>
payable to the Corporation upon the exercise of such Options or the conversion
or exchange of such Convertible Securities, or in the case of Options for
Convertible Securities, the exercise of such Options for Convertible Securities
and the conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common
Stock (as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(vi) Multiple Closing Dates. In the event the Corporation
----------------------
shall issue on more than one date Additional Shares of Common Stock which are
comprised of shares of the same series or class of Convertible Securities, and
such issuance dates occur within a period of no more than 120 days, then, upon
the final such issuance, the Series A Conversion Price and the Series B
Conversion Price shall be adjusted to give effect to all such issuances as if
they occurred on the date of the final such issuance (and without giving effect
to any adjustments as a result of such prior issuances within such period).
(e) Adjustment for Stock Splits and Combinations. If the Corporation
--------------------------------------------
shall at any time or from time to time after the Original Issue Date effect a
subdivision of the outstanding Common Stock, the Series A Conversion Price and
the Series B Conversion Price then in effect immediately before that subdivision
shall be proportionately decreased. If the Corporation shall at any time or from
time to time after the Original Issue Date combine the outstanding shares of
Common Stock, the Series A Conversion Price and the Series B Conversion Price
then in effect immediately before the combination shall be proportionately
increased. Any adjustment under this paragraph shall become effective at the
close of business on the date the subdivision or combination becomes effective.
(f) Adjustment for Certain Dividends and Distributions. In the event
--------------------------------------------------
the Corporation at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Series A
Conversion Price and the Series B Conversion Price for the Series A Preferred
Stock or the Series B Preferred Stock, as the case may be, then in effect shall
be decreased as of the time of such issuance or, in the event such a record date
shall have been fixed, as of the close of business on such record date, by
multiplying the Series A Conversion Price and the Series B Conversion Price for
the Series A Preferred Stock or the Series B Preferred Stock, as the case may
be, then in effect by a fraction:
-14-
<PAGE>
(1) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend
or distribution;
provided, however, that if such record date shall have been fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the Series A Conversion Price and the Series B Conversion Price
for the Series A Preferred Stock or the Series B Preferred Stock, as the case
may be, shall be recomputed accordingly as of the close of business on such
record date and thereafter the Series A Conversion Price or the Series B
Conversion Price, as the case may be, shall be adjusted pursuant to this
paragraph as of the time of actual payment of such dividends or distributions;
and provided further, however, that no such adjustment shall be made if the
holders of Series A Preferred Stock or Series B Preferred Stock, as the case may
be, simultaneously receive a dividend or other distribution of shares of Common
Stock in a number equal to the number of shares of Common Stock as they would
have received if all outstanding shares of Series A Preferred Stock or Series B
Preferred Stock, as the case may be, had been converted into Common Stock on the
date of such event.
(g) Adjustments for Other Dividends and Distributions. In the event
-------------------------------------------------
the Corporation at any time or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, then and in
each such event provision shall be made so that the holders of the Series A
Preferred Stock or the Series B Preferred Stock, as the case may be, shall
receive upon conversion thereof in addition to the number of shares of Common
Stock receivable thereupon, the amount of securities of the Corporation that
they would have received had the Series A Preferred Stock or the Series B
Preferred Stock been converted into Common Stock on the date of such event and
had they thereafter, during the period from the date of such event to and
including the conversion date, retained such securities receivable by them as
aforesaid during such period, giving application to all adjustments called for
during such period under this paragraph with respect to the rights of the
holders of the Series A Preferred Stock or the Series B Preferred Stock, as the
case may be; and provided further, however, that no such adjustment shall be
made if the holders of Series A Preferred Stock or Series B Preferred Stock, as
the case may be, simultaneously receive a dividend or other distribution of such
securities in an amount equal to the amount of such securities as they would
have received if all
-15-
<PAGE>
outstanding shares of Series A Preferred Stock or Series B Preferred Stock had
been converted into Common Stock on the date of such event.
(h) Adjustment for Reclassification, Exchange, or Substitution. If
----------------------------------------------------------
the Common Stock issuable upon the conversion of the Series A Preferred Stock
and the Series B Preferred Stock shall be changed into the same or a different
number of shares of any class or classes of stock, whether by capital
reorganization, reclassification, or otherwise (other than a subdivision or
combination of shares or stock dividend provided for above, or a reorganization,
merger, consolidation, or sale of assets provided for below), then and in each
such event the holder of each such share of Series A Preferred Stock and Series
B Preferred Stock shall have the right thereafter to convert such share into the
kind and amount of shares of stock and other securities and property receivable,
upon such reorganization, reclassification, or other change, by holders of the
number of shares of Common Stock into which such shares of Series A Preferred
Stock and Series B Preferred Stock might have been converted immediately prior
to such reorganization, reclassification, or change, all subject to further
adjustment as provided herein.
(i) Adjustment for Merger or Reorganization, etc. In case of any
--------------------------------------------
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale which is covered by
Subsection 2(c)), each share of Series A Preferred Stock and Series B Preferred
Stock shall thereafter be convertible (or shall be converted into a security
which shall be convertible) into the kind and amount of shares of stock or other
securities or property to which a holder of the number of shares of Common Stock
of the Corporation deliverable upon conversion of such Series A Preferred Stock
and Series B Preferred Stock would have been entitled upon such consolidation,
merger or sale; and, in such case, appropriate adjustment (as determined in good
faith by the Board of Directors) shall be made in the application of the
provisions in this Section 4 set forth with respect to the rights and interest
thereafter of the holders of the Series A Preferred Stock and the Series B
Preferred Stock, to the end that the provisions set forth in this Section 4
(including provisions with respect to changes in and other adjustments of the
Series A Conversion Price and the Series B Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other property thereafter deliverable upon the conversion of the Series A
Preferred Stock and the Series B Preferred Stock, as the case may be.
(j) No Impairment. The Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking
-16-
<PAGE>
of all such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A Preferred Stock and the Series
B Preferred Stock against impairment.
(k) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Series A Conversion Price or the Series B
Conversion Price pursuant to this Section 4, the Corporation at its expense
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and furnish to each holder of Series A Preferred Stock or Series B
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Series A Preferred Stock or Series B Preferred Stock furnish or cause to be
furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the Series A Conversion Price or the Series
B Conversion Price then in effect, and (iii) the number of shares of Common
Stock and the amount, if any, of other property which then would be received
upon the conversion of Series A Preferred Stock or Series B Preferred Stock, as
the case may be.
(l) Notice of Record Date. In the event:
---------------------
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common
Stock or other securities of the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of
its outstanding shares of Common Stock or a stock
dividend or stock distribution thereon), or of any
consolidation or merger of the Corporation into or with
another corporation, or of the sale of all or
substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation
or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series A Preferred Stock and the Series B
Preferred Stock, and shall cause to be mailed to the holders of the Series A
Preferred Stock and the Series B Preferred Stock at their last addresses as
shown on the records of the
-17-
<PAGE>
Corporation or such transfer agent, at least ten days prior to the date
specified in (A) below or twenty days before the date specified in (B) below, a
notice stating
(A) the record date of such dividend, distribution, subdivision or
combination, or, if a record is not to be taken, the date as of
which the holders of Common Stock of record to be entitled to
such dividend, distribution, subdivision or combination are to be
determined, or
(B) the date on which such reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up is expected to
become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property
deliverable upon such reclassification, consolidation, merger,
sale, dissolution or winding up.
5. Mandatory Conversion.
--------------------
(a) Upon the earlier of (x) the closing of the sale of shares of
Common Stock, at a price of at least $10.50 per share (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other similar
recapitalizations affecting such shares), in a firm commitment underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, resulting in at least $10,000,000 of
proceeds to the Corporation (net of the underwriting discounts or commissions
and offering expenses) and (y) the first date on which at least 8,300,000 shares
of Series A Preferred Stock and Series B Preferred Stock have been converted
into Common Stock pursuant to Section 4 above (the "Mandatory Conversion Date"),
(i) all outstanding shares of Series A Preferred Stock and Series B Preferred
Stock shall automatically be converted into shares of Common Stock, at the then
effective conversion rate, and (ii) all provisions hereof included under the
captions "Series A Convertible Preferred Stock" and "Series B Convertible
Preferred Stock," and all references herein to the Series A Preferred Stock and
the Series B Preferred Stock, shall be deleted and shall be of no further force
or effect.
(b) All holders of record of shares of Series A Preferred Stock and
Series B Preferred Stock shall be given written notice of the Mandatory
Conversion Date and the place designated for mandatory conversion of all such
shares of Series A Preferred Stock and Series B Preferred Stock, pursuant to
this Section 5. Such notice need not be given in advance of the occurrence of a
Mandatory Conversion Date. Such notice shall be sent by first class or
registered mail, postage prepaid, to each record holder of Series A Preferred
Stock and Series B Preferred Stock at such holder's address last shown on the
records of the transfer agent for the Series A Preferred Stock and the Series B
Preferred Stock (or the records of the
-18-
<PAGE>
Corporation, if it serves as its own transfer agent). Upon receipt of such
notice, each holder of shares of Series A Preferred Stock and Series B Preferred
Stock shall surrender his or its certificate or certificates for all such shares
to the Corporation at the place designated in such notice, and shall thereafter
receive certificates for the number of shares of Common Stock to which such
holder is entitled pursuant to this Section 5. On the Mandatory Conversion Date,
all rights with respect to the Series A Preferred Stock and the Series B
Preferred Stock so converted, including the rights, if any, to receive notices
and vote (other than as a holder of Common Stock) will terminate, except only
the rights of the holders thereof, upon surrender of their certificate or
certificates therefor, to receive certificates for the number of shares of
Common Stock into which such Series A Preferred Stock or Series B Preferred
Stock, as the case may be, has been converted, and payment of any declared but
unpaid dividends thereon. If so required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or by his or its attorney duly authorized
in writing. As soon as practicable after the Mandatory Conversion Date and the
surrender of the certificate or certificates for Series A Preferred Stock or
Series B Preferred Stock, as the case may be, the Corporation shall cause to be
issued and delivered to such holder, or on his or its written order, a
certificate or certificates for the number of full shares of Common Stock
issuable on such conversion in accordance with the provisions hereof and cash as
provided in Subsection 4(b) in respect of any fraction of a share of Common
Stock otherwise issuable upon such conversion.
(c) All certificates evidencing shares of Series A Preferred Stock or
Series B Preferred Stock which are required to be surrendered for conversion in
accordance with the provisions hereof shall, from and after the Mandatory
Conversion Date, be deemed to have been retired and cancelled and the shares of
Series A Preferred Stock or Series B Preferred Stock represented thereby
converted into Common Stock for all purposes, notwithstanding the failure of the
holder or holders thereof to surrender such certificates on or prior to such
date. The Corporation may thereafter take such appropriate action (without the
need for stockholder action) as may be necessary to reduce the authorized Series
A Preferred Stock and Series B Preferred Stock accordingly.
6. Redemption.
----------
(a) The Corporation will, subject to the conditions set forth below,
on February 15, 2003, February 15, 2004 and February 15, 2005 (each, a "Series A
Mandatory Redemption Date"), upon receipt not less than 30 nor more than 120
days prior to the applicable Series A Mandatory Redemption Date of written
request(s) for redemption from holders of at least 66 2/3% of the shares of
Series A Preferred Stock then outstanding (a "Series A Redemption Request"),
redeem from each holder of shares of Series A Preferred Stock, at a price equal
to $0.91 per share (subject to
-19-
<PAGE>
appropriate adjustment in the event of any dividend, stock split, combination or
other similar recapitalization affecting such shares), plus any declared but
unpaid dividends thereon (the "Series A Mandatory Redemption Price"), the
following respective portions of the number of shares of Series A Preferred
Stock held by such holder set forth opposite the applicable Series A Mandatory
Redemption Date:
<TABLE>
<CAPTION>
Portion of then
Outstanding Shares of
Series A Mandatory Series A Preferred Stock
Redemption Date To Be Redeemed
--------------- ------------------------
<S> <C>
February 15, 2003 33 1/3%
February 15, 2004 50%
February 15, 2005 All Shares then held
</TABLE>
The Corporation shall provide notice of its redemption obligations under this
Section 6, by first class or registered mail, postage prepaid, to each holder of
record of Series A Preferred Stock at the address for such holder last shown on
the records of the transfer agent therefor (or the records of the Corporation,
if it serves as its own transfer agent), not less than 120 nor more than 180
days prior to the applicable Series A Mandatory Redemption Date. The Corporation
shall provide notice of any Series A Redemption Request, specifying the time and
place of redemption and the Series A Mandatory Redemption Price, by first class
or registered mail, postage prepaid, to each holder of record of Series A
Preferred Stock at the address for such holder last shown on the records of the
transfer agent therefor (or the records of the Corporation, if it serves as its
own transfer agent), not less than 20 days prior to the Series A Mandatory
Redemption Date.
(b) The Corporation will, subject to the condition set forth below, on
December 3, 2003, December 3, 2004 and December 3, 2005 (each a "Series B
Mandatory Redemption Date," collectively the Series A Mandatory Redemption Date
and the Series B Mandatory Redemption Date shall be referred to as the
"Mandatory Redemption Date"), upon receipt not less than 30 nor more than 120
days prior to the applicable Series B Mandatory Redemption Date of written
request(s) for redemption from holders of at least 50% of the shares of Series B
Preferred Stock then outstanding (a "Series B Redemption Request"), redeem from
each holder of shares of Series B Preferred Stock, at a price equal to $3.50 per
share (subject to appropriate adjustment in the event of any dividend, stock
split, combination or other similar recapitalization affecting such shares),
plus any declared but unpaid dividends thereon (the "Series B Mandatory
Redemption Price"), the following respective portions of the number of shares of
Series B Preferred Stock held by such holder set forth opposite the applicable
Series B Mandatory Redemption Date:
-20-
<PAGE>
<TABLE>
<CAPTION>
Portion of then
Outstanding Shares of
Series B Mandatory Series B Preferred Stock
Redemption Date To Be Redeemed
--------------- ------------------------
<S> <C>
December 3, 2003 33 1/3%
December 3, 2004 50%
December 3, 2005 All Shares then held
</TABLE>
The Corporation shall provide notice of its redemption obligations under this
Section 6, by first class or registered mail, postage prepaid, to each holder of
record of Series B Preferred Stock at the address for such holder last shown on
the records of the transfer agent therefor (or the records of the Corporation,
if it serves as its own transfer agent), not less than 120 nor more than 180
days prior to the applicable Series B Mandatory Redemption Date. The Corporation
shall provide notice of any Series B Redemption Request, specifying the time and
place of redemption and the Series B Mandatory Redemption Price, by first class
or registered mail, postage prepaid, to each holder of record of Series B
Preferred Stock at the address for such holder last shown on the records of the
transfer agent therefor (or the records of the Corporation, if it serves as its
own transfer agent), not less than 20 days prior to the Series B Mandatory
Redemption Date.
(c) If the funds of the Corporation legally available for redemption
of Series A Preferred Stock or Series B Preferred Stock on any Mandatory
Redemption Date are insufficient to redeem the number of shares of Series A
Preferred Stock or Series B Preferred Stock required under this Section 6 to be
redeemed on such date, those funds which are legally available will be used to
redeem the maximum possible number of such shares ratably in proportion to the
respective amounts which would otherwise be payable to the holders of Series A
Preferred Stock or Series B Preferred Stock, as the case may be, if the funds of
the Corporation legally available therefor had been sufficient to redeem all
shares required to be redeemed on such date. At any time thereafter when
additional funds of the Corporation become legally available for the redemption
of Series A Preferred Stock or Series B Preferred Stock, such funds will be
used, at the end of the next succeeding fiscal quarter, to redeem, to the extent
of the available funds and in the same proportion as set forth in the preceding
sentence, the balance of the shares which the Corporation was theretofore
obligated to redeem.
(d) Unless there shall have been a default in payment of the Series A
Mandatory Redemption Price or the Series B Mandatory Redemption Price, on the
applicable Mandatory Redemption Date all rights of each holder of shares of
Series A Preferred Stock or Series B Preferred Stock as a stockholder of the
Corporation by reason of the ownership of such shares will cease, except the
right to receive the
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<PAGE>
Series A Mandatory Redemption Price or the Series B Mandatory Redemption Price,
as the case may be, for such shares, without interest, upon presentation and
surrender of the certificate representing such shares, and such shares will not
from and after such Mandatory Redemption Date be deemed to be outstanding.
(e) Any Series A Preferred Stock or Series B Preferred Stock redeemed
pursuant to this Section 6 will be cancelled and will not under any
circumstances be reissued, sold or transferred and the Corporation may from time
to time take such appropriate action as may be necessary to reduce the
authorized number of shares of Series A Preferred Stock or Series B Preferred
Stock accordingly.
7. Negative Covenants.
------------------
(a) The Corporation shall not amend, alter or repeal the preferences,
special rights or other powers of the Series A Preferred Stock so as to affect
adversely the Series A Preferred Stock, without the written consent or
affirmative vote of the holders of at least 66 2/3% of the then outstanding
shares of Series A Preferred Stock, given in writing or by vote at a meeting,
consenting or voting, as the case may be, separately as a class.
(b) The Corporation shall not amend, alter or repeal the preferences,
special rights or other powers of the Series B Preferred Stock so as to affect
adversely the Series B Preferred Stock, without the written consent or
affirmative vote of the holders of at least 66 2/3% of the then outstanding
shares of Series B Preferred Stock, given in writing or by vote at a meeting,
consenting or voting, as the case may be, separately as a class.
(c) So long as at least 3,000,000 shares of Series A Preferred Stock
and Series B Preferred Stock (subject to appropriate adjustment in the event of
any dividend, stock split, combination or other similar recapitalization
affecting such shares) are outstanding (or such lesser number of shares of
Series A Preferred Stock and Series B Preferred Stock as are then outstanding if
the Corporation has, prior to such time, failed to redeem shares of Series A
Preferred Stock and Series B Preferred Stock when such redemption was due in
accordance with Section 6 above), the Corporation shall not, without the prior
written consent of the holders of shares of Series A Preferred Stock and Series
B Preferred Stock representing at least 66 2/3 % of the combined votes
represented by the outstanding shares of Series A Preferred Stock and Series B
Preferred Stock:
(i) authorize any shares of capital stock with preference or
priority over the Series A Preferred Stock or Series B Preferred Stock as to the
right to receive either dividends or amounts distributable upon liquidation,
dissolution or winding up of the Corporation;
-22-
<PAGE>
(ii) amend the Corporation's By-laws in a manner adverse to the
holders of Series A Preferred Stock and/or Series B Preferred Stock;
(iii) declare or pay any dividends on Common Stock other than
dividends payable solely in Common Stock;
(iv) repurchase shares of Common Stock at a price greater than
the price at which they were originally issued;
(v) liquidate, dissolve or wind-up the Corporation;
(vi) make (or permit any subsidiary to make) any loan or advance
to any person, including without limitation, any employee or director of the
Corporation or any subsidiary, except (A) advances and similar expenditures in
the ordinary course of business or (B) as approved by the Board of Directors; or
(vii)(A) merge with or into or consolidate with any other
corporation (other than a merger of consolidation in which the stockholders of
the Company immediately prior thereto own at least 80% of the outstanding voting
stock of the surviving or acquiring corporation), (B) sell, lease, or otherwise
dispose of all or substantially all, or a Significant Portion (as defined
below), of its properties or assets (for this purpose, "Significant Portion"
shall mean properties or assets with a fair market value equal to more than 35%
of the book value of the Company's total properties or assets as of the end of
the most recent fiscal quarter), or (C) acquire all or substantially all of the
properties or assets of any other corporation or entity (except for
consideration of less than 20% of the Corporation's consolidated net worth as of
the end of the prior fiscal quarter.
FURTHER
RESOLVED: That the terms of the Series A Preferred Stock set forth in the
- --------
Certificate of Designations filed with the Secretary of State of
the State of Delaware on February 19, 1998 ("Certificate of
Designations") be and hereby are superseded in their entirety by
the terms set forth in this Certificate of Amendment and said
Certificate of Designations shall be of no further force or
effect.
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<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by its President this 3rd day of December, 1998.
Sycamore Networks, Inc.
By: /s/ Daniel Smith
-------------------
Daniel Smith
President
-24-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SYCAMORE NETWORKS, INC.
Sycamore Networks, Inc. (the "Corporation"), organized and existing under
and by virtue of the General Law of the State of Delaware, does hereby certify
as follows:
The Board of Directors of the Corporation duly adopted, pursuant to Section
242 of the General Corporation Law of Delaware, a resolution setting forth an
amendment to the Certificate of Incorporation of the Corporation and declaring
said amendment to be advisable. The stockholders of the Corporation duly
approved said proposed amendment in accordance with Section 242 of the General
Corporation Law of the State of Delaware by written consent in accordance with
Sections 228 and 242 of the General Corporation Law of the State of Delaware,
and written notice of such consent has been given to all stockholders who have
not consented in writing to said amendment. The resolution setting forth the
amendment is as follows:
RESOLVED: That Article FOURTH of the Certificate of Incorporation of
--------
the Corporation be and hereby is deleted in its entirety and the following
Article FOURTH is inserted in lieu thereof:
FOURTH: The total number of shares of all classes of stock
------
which the Corporation shall have authority to issue is 40,500,000
shares, consisting of (i) 25,000,000 shares of Common Stock,
$.001 par value per share ("Common Stock"), and (ii) 15,500,000
shares of Preferred Stock, $.01 par value per share ("Preferred
Stock"), 8,975,000 shares of which have been designated as Series
A Convertible Preferred Stock ("Series A Preferred Stock"),
3,625,000 shares of which have been designated as Series B
Convertible Preferred Stock ("Series B Preferred Stock") and
<PAGE>
2,500,000 shares of which have been designated as Series C
Convertible Preferred Stock ("Series C Preferred Stock", the
Series A Preferred Stock, Series B Preferred Stock and the Series
C Preferred Stock shall collectively be referred to as the
"Designated Preferred Stock").
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Corporation.
A. Common Stock.
------------
1. General. 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
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one vote for
------
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. Dividends. Dividends may be declared and paid on the Common Stock from
---------
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
-----------
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. Preferred Stock.
---------------
Preferred Stock may be issued from time to time in one or more series, each
of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed
-2-
<PAGE>
to constitute different classes of shares for the purposes of voting by classes
unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issue of the shares thereof, to determine and fix such voting powers, full
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of Delaware. Without
limiting the generality of the foregoing, the resolutions providing for issuance
of any series of Preferred Stock may provide that such series shall be superior
or rank equally or be junior to the Preferred Stock of any other series to the
extent permitted by law. Except as otherwise provided in this Certificate of
Incorporation, no vote of the holders of the Preferred Stock or Common Stock
shall be a prerequisite to the designation or issuance of any shares of any
series of the Preferred Stock authorized by and complying with the conditions of
this Certificate of Incorporation, the right to have such vote being expressly
waived by all present and future holders of the capital stock of the
Corporation.
C. Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
-------------------------------------------------------------------------
Stock.
- -----
1. Dividends.
---------
(a) The Corporation shall not declare or pay any dividends or
distributions (as defined below) on shares of Common Stock until the holders of
the Designated Preferred Stock then outstanding shall have first received, or
simultaneously receive, a like distribution on each outstanding share of
Designated Preferred Stock, in an amount at least equal to the product of (i)
the per share amount, if any, of the dividends or distributions to be declared,
paid or set aside for the Common Stock, multiplied by (ii) the number of whole
shares of Common Stock into which such share of Designated Preferred Stock is
convertible as of the record date for such dividend or distribution.
(b) For purposes of this Section 1, "distribution" shall mean the
transfer of cash or property without consideration, whether by way of dividend
or otherwise, payable other than in Common Stock or other securities of the
Corporation, or the purchase or redemption of shares of the Corporation (other
than repurchases of Common Stock held by employees or directors of, or
consultants to, the Corporation upon termination of their employment or services
pursuant to agreements approved by the Board of Directors providing for such
repurchase at a price equal to the
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<PAGE>
original issue price of such shares) for cash or property, including any such
transfer, purchase or redemption by a subsidiary of the Corporation.
2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations
-----------------------------------------------------------------------
and Asset Sales.
- ---------------
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of
Designated Preferred Stock then outstanding shall be entitled to be paid out of
the assets of the Corporation available for distribution to its stockholders,
after and subject to the payment in full of all amounts required to be
distributed to the holders of any other class or series of stock of the
Corporation ranking on liquidation prior and in preference to the Designated
Preferred Stock, but before any payment shall be made to the holders of Common
Stock or any other class or series of stock ranking on liquidation junior to the
Designated Preferred Stock by reason of their ownership thereof, an amount equal
to $0.91 per share in the case of the Series A Preferred Stock, $3.50 per share
in the case of the Series B Preferred Stock and $8.00 per share in the case of
the Series C Preferred Stock (subject to appropriate adjustment in the event of
any stock dividend, stock split, combination or other similar recapitalization
affecting such shares), plus any dividends declared but unpaid on such shares.
If upon any such liquidation, dissolution or winding up of the Corporation the
remaining assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of shares of Designated
Preferred Stock the full amount to which they shall be entitled, the holders of
shares of Designated Preferred Stock and any class or series of stock ranking on
liquidation on a parity with the Designated Preferred Stock shall share ratably
in any distribution of the remaining assets and funds of the Corporation in
proportion to the respective amounts which would otherwise be payable in respect
of the shares held by them upon such distribution if all amounts payable on or
with respect to such shares were paid in full.
(b) After the payment of all preferential amounts required to be
paid to the holders of any class or series of stock of the Corporation ranking
on liquidation prior to and in preference to the Common Stock, upon the
dissolution, liquidation or winding up of the Corporation, the remaining assets
and funds of the Corporation available for distribution to its stockholders
shall be distributed among the holders of shares of Common Stock.
(c) Any (i) merger or consolidation which results in the voting
securities of the Corporation outstanding immediately prior thereto representing
immediately thereafter (either by remaining outstanding or by being converted
into voting securities of the surviving or acquiring entity) less than a
majority of the combined voting power of the voting securities of the
Corporation or such surviving or acquiring entity outstanding immediately after
such merger or consolidation, (ii) sale
-4-
<PAGE>
of all or substantially all of the assets of the Corporation or (iii) sale of
shares of capital stock of the Corporation, in a single transaction or series of
related transactions, representing at least 80% of the voting power of the
voting securities of the Corporation, shall be deemed to be a liquidation of the
Corporation, and all consideration payable to the stockholders of the
Corporation (in the case of a merger or consolidation), or all consideration
payable to the Corporation (net of obligations owed by the Corporation),
together with all other available assets of the Corporation (in the case of an
asset sale), shall be distributed to the holders of capital stock of the
Corporation in accordance with Subsections 2(a) and 2(b) above. The Corporation
shall promptly provide to the holders of shares of Designated Preferred Stock
such information concerning the terms of such merger, consolidation or asset
sale and the value of the assets of the Corporation as may reasonably be
requested by the holders of Designated Preferred Stock. If applicable, the
Corporation shall cause the agreement or plan of merger or consolidation to
provide for a rate at which the shares of capital stock of the Corporation are
converted into or exchanged for cash, new securities or other property which
gives effect to this provision. The amount deemed distributed to the holders of
Designated Preferred Stock upon any such merger or consolidation shall be the
cash or the value of the property, rights or securities distributed to such
holders by the Corporation and/or by the acquiring person, firm or other entity.
The value of such property, rights or other securities shall be determined in
good faith by the Board of Directors of the Corporation.
3. Voting.
------
(a) Each holder of outstanding shares of the Designated Preferred
Stock shall be entitled to the number of votes equal to the number of whole
shares of Common Stock into which the shares of Designated Preferred Stock held
by such holder are convertible (as adjusted from time to time pursuant to
Section 4 hereof) as of the record date, at each meeting of stockholders of the
Corporation (and written actions of stockholders in lieu of meetings) with
respect to any and all matters presented to the stockholders of the Corporation
for their action or consideration. Except as provided by law or by the
provisions of Section 3(b) or Section 7 below or by the provisions establishing
any other series of stock, holders of Designated Preferred Stock and of any
other outstanding series of stock shall vote together with the holders of Common
Stock as a single class.
(b) For so long as at least 2,500,000 shares of Designated Preferred
Stock (subject to appropriate adjustment for stock splits, stock dividends,
combinations and other similar recapitalizations affecting such shares) are
outstanding (or such lesser number of shares of Designated Preferred Stock as
are then outstanding if the Corporation has, prior to such time, failed to
redeem shares of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock, as the case may be, when such redemption was due in accordance
with Section 6 below), the holders of record of the shares of Designated
Preferred Stock, exclusively and as a separate
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<PAGE>
class, shall be entitled to elect two members of the Board of Directors of the
Corporation. At any meeting held for the purpose of electing directors, the
presence in person or by proxy of the holders of a majority of the shares of
Designated Preferred Stock then outstanding shall constitute a quorum of the
Designated Preferred Stock for the purpose of electing directors by holders of
Designated Preferred Stock. A vacancy in any directorship filled by the holders
of Designated Preferred Stock shall be filled only by vote or written consent in
lieu of a meeting of the holders of Designated Preferred Stock.
4. Optional Conversion. The holders of Designated Preferred Stock shall
-------------------
have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock shall
----------------
be convertible, at the option of the holder thereof, at any time and from time
to time, and without the payment of additional consideration by the holder
thereof, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing $0.91 by the Series A Conversion Price (as defined
below) in effect at the time of conversion. The "Series A Conversion Price"
shall initially be $0.91. Such Series A Conversion Price, and the rate at which
shares of Series A Preferred Stock may be converted into shares of Common Stock,
shall be subject to adjustment as provided below. Each share of Series B
Preferred Stock shall be convertible, at the option of the holder thereof at any
time and from time to time and without the payment of additional consideration
by the holder thereof, into such number of fully paid and nonassessable shares
of Common Stock as is determined by dividing $3.50 by the Series B Conversion
Price (as defined below) in effect at the time of conversion. The "Series B
Conversion Price" shall initially be $3.50. Such Series B Conversion Price, and
the rate at which shares of Series B Preferred Stock may be converted into
shares of Common Stock, shall be subject to adjustment as provided below. Each
share of Series C Preferred Stock shall be convertible, at the option of the
holder thereof at any time and from time to time and without the payment of
additional consideration by the holder thereof, into such number of fully paid
and nonassessable shares of common stock as is determined by dividing $8.00 by
the Series C Conversion Price (as defined below) in effect at the time of the
conversion. The "Series C Conversion Price" shall initially be $8.00. Such
Series C Conversion Price, and the rate at which shares of Series C Preferred
Stock may be converted into shares of Common Stock, shall be subject to
adjustment as provided below.
In the event of a notice of redemption of any shares of Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock pursuant to Section
6 hereof, the Conversion Rights of the shares designated for redemption shall
terminate at the close of business on the first full day preceding the date
fixed for redemption, unless the redemption price is not paid when due, in which
case the Conversion Rights for such shares shall continue until such price is
paid in full. In the event of a liquidation of the Corporation (or deemed
liquidation under Section 2(c) hereof), the
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<PAGE>
Conversion Rights shall terminate at the close of business on the first full
business day preceding the date fixed for the payment of any amounts
distributable on liquidation (or deemed liquidation under Section 2(c) hereof)
to the holders of Designated Preferred Stock.
(b) Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issued upon conversion of the Designated Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Series A Conversion Price, Series B Conversion Price or Series C
Conversion Price, as the case may be.
(c) Mechanics of Conversion.
-----------------------
(i) In order for a holder of Designated Preferred Stock to
convert shares of Designated Preferred Stock into shares of Common Stock, such
holder shall surrender the certificate or certificates for such shares of
Designated Preferred Stock, at the office of the transfer agent for such shares
of Designated Preferred Stock (or at the principal office of the Corporation if
the Corporation serves as its own transfer agent), together with written notice
that such holder elects to convert all or any number of the shares of Designated
Preferred Stock represented by such certificate or certificates. Such notice
shall state such holder's name or the names of the nominees in which such holder
wishes the certificate or certificates for shares of Common Stock to be issued.
If required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by a written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
his or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
("Conversion Date"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such holder of Designated
Preferred Stock, or to his or its nominees, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when Designated
Preferred Stock shall be outstanding, reserve and keep available out of its
authorized but unissued stock, for the purpose of effecting the conversion of
Designated Preferred Stock, such number of its duly authorized shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding Designated Preferred Stock. Before taking any action which would
cause an adjustment reducing the Series A Conversion Price, the Series B
Conversion Price or the Series C Conversion Price below the then par value of
the shares of Common Stock issuable upon conversion of the Series A Preferred
Stock, the Series B Preferred Stock or the Series C Preferred Stock, as the case
may be, the Corporation will take any corporate action which may, in the opinion
of its counsel, be necessary in order that the
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<PAGE>
Corporation may validly and legally issue fully paid and nonassessable shares of
Common Stock at such adjusted Series A Conversion Price, Series B Conversion
Price or the Series C Conversion Price.
(iii) Upon any such conversion, no adjustment to the Series A
Conversion Price, the Series B Conversion Price or the Series C Conversion Price
shall be made for any declared but unpaid dividends on the Series A Preferred
Stock, the Series B Preferred Stock or Series C Preferred Stock, as the case may
be, surrendered for conversion or on the Common Stock delivered upon conversion.
(iv) All shares of Designated Preferred Stock which shall
have been surrendered for conversion as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such shares, including
the rights, if any, to receive notices and to vote, shall immediately cease and
terminate on the Conversion Date, except only the right of the holders thereof
to receive shares of Common Stock in exchange therefor and payment of any
dividends declared but unpaid thereon. Any shares of Designated Preferred Stock
so converted shall be retired and cancelled and shall not be reissued, and the
Corporation (without the need for stockholder action) may from time to time take
such appropriate action as may be necessary to reduce the authorized number of
shares of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other
taxes that may be payable in respect of any issuance or delivery of shares of
Common Stock upon conversion of shares of Designated Preferred Stock pursuant to
this Section 4. The Corporation shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock in a name other than that in which the shares
of Designated Preferred Stock so converted were registered, and no such issuance
or delivery shall be made unless and until the person or entity requesting such
issuance has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
(d) Adjustments to Conversion Price for Diluting Issues:
---------------------------------------------------
(i)Special Definitions. For purposes of this Subsection 4(d),
-------------------
the following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to
------
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities.
(B) "Original Issue Date" shall mean the date on which a
-------------------
share of Series A Preferred Stock was first issued.
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<PAGE>
(C) "Convertible Securities" shall mean any evidences of
----------------------
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all shares of
---------------------------------
Common Stock issued (or, pursuant to Subsection 4(d)(iii) below, deemed to be
issued) by the Corporation after the Original Issue Date, other than:
(I) shares of Common Stock issued or issuable as
a dividend or other distribution on
Designated Preferred Stock;
(II) shares of Common stock issued or issuable by
reason of a dividend or other distribution on
shares of common stock that is covered by
subsection 4(e) or 4(f) below;
(III) shares of Common Stock issued or issuable
upon conversion of those shares of (1) Series
A Preferred Stock sold pursuant to the Series
A Preferred Stock Purchase Agreement dated as
of February 19, 1998, as the same may be
amended from time to time, (2) Series B
Preferred Stock sold pursuant to the Series B
Preferred Stock Purchase Agreement dated as
of December 3, 1998, as the same may be
amended from time to time and (3) Series C
Preferred Stock sold pursuant to the Series C
Preferred Stock Purchase Agreement dated as
of February 26, 1999, as the same may be
amended from time to time;
(IV) up to 5,995,604 shares of Common Stock
(subject to appropriate adjustment for stock
splits, stock dividends, combinations and
other similar recapitalizations affecting
such shares), plus such additional number of
shares as may be approved by a majority of
the non-employee members of the Board of
Directors of the Corporation, issued or
issuable to employees or directors of, or
consultants to, the Corporation; and
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<PAGE>
(V) shares of Common Stock issued to equipment
lessors, as approved by a majority of the
non-employee members of the Board of
Directors of the Corporation.
(ii) No Adjustment of Conversion Price. No adjustment in the
---------------------------------
number of shares of Common Stock into which the Series A Preferred Stock is
convertible shall be made (a) unless the consideration per share (determined
pursuant to Subsection 4(d)(v)) for an Additional Share of Common Stock issued
or deemed to be issued by the Corporation is less than the applicable Series A
Conversion Price in effect on the date of, and immediately prior to, the issue
of such Additional Shares, or (b) if prior to or within 60 days subsequent to
such issuance, the Corporation receives written notice from the holders of at
least a majority of the then outstanding shares of Series A Preferred Stock,
agreeing that no such adjustment shall be made as a result of the issuance of
Additional Shares of Common Stock. No adjustment in the number of shares of
Common Stock into which the Series B Preferred Stock is convertible shall be
made (a) unless the consideration per share (determined pursuant to Subsection
4(d)(v)) for an Additional Share of Common Stock issued or deemed to be issued
by the Corporation is less than the applicable Series B Conversion Price in
effect on the date of, and immediately prior to, the issue of such Additional
Shares, or (b) if prior to or within 60 days subsequent to such issuance, the
Corporation receives written notice from the holders of at least a majority of
the then outstanding shares of Series B Preferred Stock, agreeing that no such
adjustment shall be made as a result of the issuance of Additional Shares of
Common Stock. No adjustment in the number of shares of Common Stock into which
the Series C Preferred Stock is convertible shall be made (a) unless the
consideration per share (determined pursuant to Subsection 4(d)(v)) for an
Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the applicable Series C Conversion Price in effect on
the date of, and immediately prior to, the issue of such Additional Shares, or
(b) if prior to or within 60 days subsequent to such issuance, the Corporation
receives written notice from the holders of at least a majority of the then
outstanding shares of Series C Preferred Stock, agreeing that no such adjustment
shall be made as a result of the issuance of Additional Shares of Common Stock.
(iii) Issue of Securities Deemed Issue of Additional Shares of
--------------------------------------------------------
Common Stock.
- ------------
If the Corporation at any time or from time to time after the Original
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares of Common Stock (as set forth in the instrument relating thereto
without regard to any provision contained therein for a subsequent adjustment of
such number) issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options
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<PAGE>
therefor, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Shares of Common Stock issued as of the time of such
issue or, in case such a record date shall have been fixed, as of the close of
business on such record date, provided that (x) for the purpose of adjusting the
Series A Conversion Price, Additional Shares of Common Stock shall not be deemed
to have been issued unless the consideration per share (determined pursuant to
Subsection 4(d)(v) hereof) of such Additional Shares of Common Stock would be
less than the applicable Series A Conversion Price in effect on the date of and
immediately prior to such issue, or such record date, (y) for the purpose of
adjusting the Series B Conversion Price, Additional Shares of Common Stock shall
not be deemed to have been issued unless the consideration per share (determined
pursuant to Subsection 4(d)(v) hereof) of such Additional Shares of Common Stock
would be less than the applicable Series B Conversion Price in effect on the
date of and immediately prior to such issue, or such record date, and (z) for
the purpose of adjusting the Series C Conversion Price, Additional Shares of
Common Stock shall not be deemed to have been issued unless the consideration
per share (determined pursuant to Subsection 4(d)(v) hereof) of such Additional
Shares of Common Stock would be less than the applicable Series C Conversion
Price in effect on the date of and immediately prior to such issue, or such
record date, and provided further that in any such case in which Additional
Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the Series A Conversion Price, the
Series B Conversion Price or the Series C Conversion Price shall be made upon
subsequent issue of Convertible Securities or shares of Common Stock upon
exercise of such Options or conversion or exchange of such Convertible
Securities;
(B) If such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase or decrease in
the consideration payable to the Corporation, upon the exercise, conversion or
exchange thereof, the Series A Conversion Price, the Series B Conversion Price
or the Series C Conversion Price, as applicable, computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or decrease
insofar as it affects such Options or the rights of conversion or exchange under
such Convertible Securities;
(C) Upon the expiration or termination of any unexercised
Option, the Series A Conversion Price, the Series B Conversion Price and Series
C Conversion Price, as applicable, shall not be readjusted, but the Additional
Shares of Common Stock deemed issued as the result of the original issue of such
Option shall not be deemed issued for the purposes of any subsequent adjustment
of the Series A Conversion Price, the Series B Conversion Price or Series C
Conversion Price, as applicable;
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<PAGE>
(D) In the event of any change in the number of shares
of Common Stock issuable upon the exercise, conversion or exchange of any Option
or Convertible Security, including, but not limited to, a change resulting from
the anti-dilution provisions thereof, the Series A Conversion Price, the Series
B Conversion Price and Series C Conversion Price then in effect shall forthwith
be readjusted to such Series A Conversion Price, Series B Conversion Price and
Series C Conversion Price as would have obtained had the adjustment which was
made upon the issuance of such Option or Convertible Security not exercised or
converted prior to such change been made upon the basis of such change; and
(E) No readjustment pursuant to clause (B) or (D)
above shall have the effect of increasing the Series A Conversion Price, the
Series B Conversion Price or Series C Conversion Price, as applicable, to an
amount which exceeds the lower of (i) the Series A Conversion Price, the Series
B Conversion Price or the Series C Conversion Price, as the case may be, on the
original adjustment date, or (ii) the Series A Conversion Price, the Series B
Conversion Price or Series C Conversion Price that would have resulted from any
issuances of Additional Shares of Common Stock between the original adjustment
date and such readjustment date.
In the event the Corporation, after the Original Issue Date, amends any
Options or Convertible Securities (whether such Options or Convertible
Securities were outstanding on the Original Issue Date or were issued after the
Original Issue Date) to increase the number of shares issuable thereunder or
decrease the consideration to be paid upon exercise or conversion thereof, then
such Options or Convertible Securities, as so amended, shall be deemed to have
been issued after the Original Issue Date and the provisions of this Subsection
4(d)(iii) shall apply.
(iv) Adjustment of Conversion Price Upon Issuance of Additional
----------------------------------------------------------
Shares of Common Stock.
- ----------------------
(A) In the event the Corporation shall at any time
after the Original Issue Date issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Subsection
4(d)(iii), but excluding shares issued as a stock split or combination as
provided in Subsection 4(e) or upon a dividend or distribution as provided in
Subsection 4(f)), without consideration or for a consideration per share less
than the applicable Series A Conversion Price in effect on the date of and
immediately prior to such issue, then and in such event, such Series A
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series A
Conversion Price by a fraction, (A) the numerator of which shall be (1) the
number of shares of Common Stock outstanding immediately prior to such issue
plus (2) the number of shares of Common Stock which the aggregate consideration
received or to be received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Series A
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<PAGE>
Conversion Price; and (B) the denominator of which shall be the number of shares
of Common Stock outstanding immediately prior to such issue plus the number of
such Additional Shares of Common Stock so issued; provided that, (i) for the
-------------
purpose of this Subsection 4(d)(iv), all shares of Common Stock issuable upon
exercise or conversion of Options or Convertible Securities outstanding
immediately prior to such issue shall be deemed to be outstanding, and (ii) for
the purpose of this Subsection 4(d)(iv), the number of shares of Common Stock
deemed issuable upon conversion of such outstanding Convertible Securities shall
not give effect to any adjustments to the conversion price or conversion rate of
such Convertible Securities resulting from the issuance of Additional Shares of
Common Stock that is the subject of this calculation.
(B) In the event the Corporation shall at any time
after the Original Issue Date issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Subsection
4(d)(iii), but excluding shares issued as a stock split or combination as
provided in Subsection 4(e) or upon a dividend or distribution as provided in
Subsection 4(f)), without consideration or for a consideration per share less
than the applicable Series B Conversion Price in effect on the date of and
immediately prior to such issue, then and in such event, such Series B
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series B
Conversion Price by a fraction, (A) the numerator of which shall be (1) the
number of shares of Common Stock outstanding immediately prior to such issue
plus (2) the number of shares of Common Stock which the aggregate consideration
received or to be received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Series B Conversion
Price; and (B) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; provided that, (i) for the purpose
-------- ----
of this Subsection 4(d)(iv), all shares of Common Stock issuable upon exercise
or conversion of Options or Convertible Securities outstanding immediately prior
to such issue shall be deemed to be outstanding, and (ii) for the purpose of
this Subsection 4(d)(iv), the number of shares of Common Stock deemed issuable
upon conversion of such outstanding Convertible Securities shall not give effect
to any adjustments to the conversion price or conversion rate of such
Convertible Securities resulting from the issuance of Additional Shares of
Common Stock that is the subject of this calculation.
(C) In the event the Corporation shall at any time
after the Original Issue Date issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Subsection
4(d)(iii), but excluding shares issued as a stock split or combination as
provided in Subsection 4(e) or upon a dividend or distribution as provided in
Subsection 4(f)), without consideration or for a consideration per share less
than the applicable Series C
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<PAGE>
Conversion Price in effect on the date of and immediately prior to such issue,
then and in such event, such Series C Conversion Price shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by multiplying such Series C Conversion Price by a fraction, (A) the
numerator of which shall be (1) the number of shares of Common Stock outstanding
immediately prior to such issue plus (2) the number of shares of Common Stock
which the aggregate consideration received or to be received by the Corporation
for the total number of Additional Shares of Common Stock so issued would
purchase at such Series C Conversion Price; and (B) the denominator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such issue plus the number of such Additional Shares of Common Stock so issued;
provided that, (i) for the purpose of this Subsection 4(d)(iv), all shares of
- -------- ----
Common Stock issuable upon exercise or conversion of Options or Convertible
Securities outstanding immediately prior to such issue shall be deemed to be
outstanding, and (ii) for the purpose of this Subsection 4(d)(iv), the number of
shares of Common Stock deemed issuable upon conversion of such outstanding
Convertible Securities shall not give effect to any adjustments to the
conversion price or conversion rate of such Convertible Securities resulting
from the issuance of Additional Shares of Common Stock that is the subject of
this calculation.
(v) Determination of Consideration. For purposes of this
------------------------------
Subsection 4(d), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
-----------------
(I) insofar as it consists of cash, be
computed at the aggregate of cash received by the Corporation, excluding amounts
paid or payable for accrued interest;
(II) insofar as it consists of property
other than cash, be computed at the fair market value thereof at the time of
such issue, as determined in good faith by the Board of Directors; and
(III) in the event Additional Shares of
Common Stock are issued together with other shares or securities or other assets
of the Corporation for consideration which covers both, be the proportion of
such consideration so received, computed as provided in clauses (I) and (II)
above, as determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The
----------------------------------
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Subsection 4(d)(iii),
relating to Options and Convertible Securities, shall be determined by dividing
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<PAGE>
(x) the total amount, if any, received or receivable by
the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(vi) Multiple Closing Dates. Notwithstanding any adjustments to
----------------------
the Series A Conversion Price, the Series B Conversion Price and the Series C
Conversion Price pursuant to Section 4(d) hereof, in the event the Corporation
shall issue on more than one date Additional Shares of Common Stock which are
comprised of shares of the same series or class of Convertible Securities, and
such issuance dates occur within a period of no more than 180 days, then, upon
the final such issuance, the Series A Conversion Price, the Series B Conversion
Price and the Series C Conversion Price, as the case may be, shall be readjusted
to give effect to all such issuances as if they occurred on the date of the
final such issuance (and without giving effect to any adjustments as a result of
such prior issuances within such period).
(e) Adjustment for Stock Splits and Combinations. If the Corporation
--------------------------------------------
shall at any time or from time to time after the Original Issue Date effect a
subdivision of the outstanding Common Stock, the Series A Conversion Price, the
Series B Conversion Price and the Series C Conversion Price then in effect
immediately before that subdivision shall be proportionately decreased. If the
Corporation shall at any time or from time to time after the Original Issue Date
combine the outstanding shares of Common Stock, the Series A Conversion Price,
the Series B Conversion Price and the Series C Conversion Price then in effect
immediately before the combination shall be proportionately increased. Any
adjustment under this paragraph shall become effective at the close of business
on the date the subdivision or combination becomes effective.
(f) Adjustment for Certain Dividends and Distributions. In the event
--------------------------------------------------
the Corporation at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Series A
Conversion Price, the
-15-
<PAGE>
Series B Conversion Price and the Series C Conversion Price, as the case may be,
then in effect shall be decreased as of the time of such issuance or, in the
event such a record date shall have been fixed, as of the close of business on
such record date, by multiplying the Series A Conversion Price, the Series B
Conversion Price and the Series C Conversion Price, as the case may be, then in
effect by a fraction:
(1) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such
record date, and
(2) the denominator of which shall be the total number
of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on
such record date plus the number of shares of Common Stock
issuable in payment of such dividend or distribution;
provided, however, that if such record date shall have been fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the Series A Conversion Price, the Series B Conversion Price and
the Series C Conversion Price, as the case may be, shall be recomputed
accordingly as of the close of business on such record date and thereafter the
Series A Conversion Price, the Series B Conversion Price or Series C Conversion
Price, as the case may be, shall be adjusted pursuant to this paragraph as of
the time of actual payment of such dividends or distributions; and provided
further, however, that no such adjustment shall be made if the holders of the
applicable Designated Preferred Stock simultaneously receive a dividend or other
distribution of shares of Common Stock in a number equal to the number of shares
of Common Stock as they would have received if all outstanding shares of the
applicable Designated Preferred Stock had been converted into Common Stock on
the date of such event.
(g) Adjustments for Other Dividends and Distributions. In the
-------------------------------------------------
event the Corporation at any time or from time to time after the Original Issue
Date shall make or issue, or fix a record date for the determination of holders
of Common Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, then and in
each such event provision shall be made so that the holders of Designated
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the amount of securities of the
Corporation that they would have received had the Designated Preferred Stock
been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
conversion date, retained such securities receivable by them as aforesaid during
such period, giving application to all adjustments called for during such period
under this paragraph with respect to the rights of the holders of Designated
Preferred Stock; and provided further,
-16-
<PAGE>
however, that no such adjustment shall be made if the holders of Designated
Preferred Stock simultaneously receive a dividend or other distribution of such
securities in an amount equal to the amount of such securities as they would
have received if all outstanding shares of Designated Preferred Stock had been
converted into Common Stock on the date of such event.
(h) Adjustment for Reclassification, Exchange, or Substitution.
----------------------------------------------------------
If the Common Stock issuable upon the conversion of the Designated Preferred
Stock shall be changed into the same or a different number of shares of any
class or classes of stock, whether by capital reorganization, reclassification,
or otherwise (other than a subdivision or combination of shares or stock
dividend provided for above, or a reorganization, merger, consolidation, or sale
of assets provided for below), then and in each such event the holder of each
such share of Designated Preferred Stock shall have the right thereafter to
convert such share into the kind and amount of shares of stock and other
securities and property receivable, upon such reorganization, reclassification,
or other change, by holders of the number of shares of Common Stock into which
such shares of Designated Preferred Stock might have been converted immediately
prior to such reorganization, reclassification, or change, all subject to
further adjustment as provided herein.
(i) Adjustment for Merger or Reorganization, etc. In case of any
---------------------------------------------
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale which is covered by
Subsection 2(c)), each share of Designated Preferred Stock shall thereafter be
convertible (or shall be converted into a security which shall be convertible)
into the kind and amount of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Designated Preferred Stock would have been
entitled upon such consolidation, merger or sale; and, in such case, appropriate
adjustment (as determined in good faith by the Board of Directors) shall be made
in the application of the provisions in this Section 4 set forth with respect to
the rights and interest thereafter of the holders of Designated Preferred Stock,
to the end that the provisions set forth in this Section 4 (including provisions
with respect to changes in and other adjustments of the Series A Conversion
Price, the Series B Conversion Price and Series C Conversion Price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the conversion of
the applicable Designated Preferred Stock.
(j) No Impairment. The Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good
-17-
<PAGE>
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or appropriate in order to
protect the Conversion Rights of the holders of the Designated Preferred Stock
against impairment.
(k) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Series A Conversion Price, the Series B
Conversion Price or Series C Conversion Price pursuant to this Section 4, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Designated Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Designated Preferred Stock furnish or cause to be
furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the Series A Conversion Price, the Series B
Conversion Price or Series C Conversion Price then in effect, and (iii) the
number of shares of Common Stock and the amount, if any, of other property which
then would be received upon the conversion of the applicable Designated
Preferred Stock.
(l) Notice of Record Date. In the event:
---------------------
(i) that the Corporation declares a dividend (or
any other distribution) on its Common Stock
payable in Common Stock or other securities of
the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of
the Corporation (other than a subdivision or
combination of its outstanding shares of Common
Stock or a stock dividend or stock distribution
thereon), or of any consolidation or merger of
the Corporation into or with another
corporation, or of the sale of all or
substantially all of the assets of the
Corporation; or
(iv) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Designated Preferred Stock, and shall cause
to be mailed to the holders of Designated Preferred Stock at their last
addresses as shown on the records of the Corporation or such transfer agent, at
least ten days prior to the date
-18-
<PAGE>
specified in (A) below or twenty days before the date specified in (B) below, a
notice stating
(A) the record date of such dividend, distribution, subdivision
or combination, or, if a record is not to be taken, the date
as of which the holders of Common Stock of record to be
entitled to such dividend, distribution, subdivision or
combination are to be determined, or
(B) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such
reclassification, consolidation, merger, sale, dissolution
or winding up.
5.Mandatory Conversion.
--------------------
(a) Upon the earlier of (x) the closing of the sale of shares of
Common Stock, at a price of at least $12.00 per share (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other similar
recapitalizations affecting such shares), in a firm commitment underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, resulting in at least $10,000,000 of
proceeds to the Corporation (net of the underwriting discounts or commissions
and offering expenses) and (y) the first date on which at least 10,000,000
shares of Designated Preferred Stock have been converted into Common Stock
pursuant to Section 4 above (the "Mandatory Conversion Date"), (i) all
outstanding shares of Designated Preferred Stock shall automatically be
converted into shares of Common Stock, at the then effective conversion rate,
and (ii) all provisions hereof included under the captions "Series A Convertible
Preferred Stock", "Series B Convertible Preferred Stock" and "Series C
Convertible Preferred Stock" and all references herein to the Series A Preferred
Stock, the Series B Preferred Stock and the Series C Preferred Stock (including
all references to Designated Preferred Stock), shall be deleted and shall be of
no further force or effect.
(b) All holders of record of shares of Designated Preferred
Stock shall be given written notice of the Mandatory Conversion Date and the
place designated for mandatory conversion of all such shares of Designated
Preferred Stock, pursuant to this Section 5. Such notice need not be given in
advance of the occurrence of a Mandatory Conversion Date. Such notice shall be
sent by first class or registered mail, postage prepaid, to each record holder
of Designated Preferred Stock at such holder's address last shown on the records
of the transfer agent for the applicable
-19-
<PAGE>
Designated Preferred Stock (or the records of the Corporation, if it serves as
its own transfer agent). Upon receipt of such notice, each holder of shares of
Designated Preferred Stock shall surrender his or its certificate or
certificates for all such shares to the Corporation at the place designated in
such notice, and shall thereafter receive certificates for the number of shares
of Common Stock to which such holder is entitled pursuant to this Section 5. On
the Mandatory Conversion Date, all rights with respect to the Designated
Preferred Stock so converted, including the rights, if any, to receive notices
and vote (other than as a holder of Common Stock) will terminate, except only
the rights of the holders thereof, upon surrender of their certificate or
certificates therefor, to receive certificates for the number of shares of
Common Stock into which such Designated Preferred Stock has been converted, and
payment of any declared but unpaid dividends thereon. If so required by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or by
his or its attorney duly authorized in writing. As soon as practicable after the
Mandatory Conversion Date and the surrender of the certificate or certificates
for Designated Preferred Stock the Corporation shall cause to be issued and
delivered to such holder, or on his or its written order, a certificate or
certificates for the number of full shares of Common Stock issuable on such
conversion in accordance with the provisions hereof and cash as provided in
Subsection 4(b) in respect of any fraction of a share of Common Stock otherwise
issuable upon such conversion.
(c) All certificates evidencing shares of Designated Preferred Stock
which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Date, be deemed
to have been retired and cancelled and the shares of Designated Preferred Stock
represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. The Corporation may thereafter take such
appropriate action (without the need for stockholder action) as may be necessary
to reduce the authorized Designated Preferred Stock accordingly.
6. Redemption.
----------
(a) The Corporation will, subject to the conditions set forth below,
on February 26, 2004, February 26, 2005 and February 26, 2006 (each, a
"Mandatory Redemption Date"), upon receipt not less than 30 nor more than 120
days prior to the applicable Mandatory Redemption Date of written request(s) for
redemption from holders of at least a majority of the shares of Designated
Preferred Stock then outstanding (a "Redemption Request"), redeem from each
holder of shares of Designated Preferred Stock, at a price equal to $0.91 per
share in the case of the Series A Preferred Stock, $3.50 per share in the case
of the Series B Preferred Stock and $8.00 per share in the case of the Series C
Preferred Stock (subject to appropriate
-20-
<PAGE>
adjustment in the event of any dividend, stock split, combination or other
similar recapitalization affecting such shares), plus any declared but unpaid
dividends thereon (the "Redemption Price"), the following respective portions of
the number of shares of Designated Preferred Stock held by such holder set forth
opposite the applicable Redemption Date:
<TABLE>
<CAPTION>
Portion of then
Outstanding Shares of
Mandatory Designated Preferred Stock
Redemption Date To Be Redeemed
--------------- ------------------------
<S> <C>
February 26, 2004 33 1/3%
February 26, 2005 50%
February 26, 2006 All Shares then held
</TABLE>
The Corporation shall provide notice of its redemption obligations under this
Section 6, by first class or registered mail, postage prepaid, to each holder of
record of Designated Preferred Stock at the address for such holder last shown
on the records of the transfer agent therefor (or the records of the
Corporation, if it serves as its own transfer agent), not less than 120 nor more
than 180 days prior to the applicable Mandatory Redemption Date. The
Corporation shall provide notice of any Redemption Request, specifying the time
and place of redemption and the Mandatory Redemption Price, by first class or
registered mail, postage prepaid, to each holder of record of Designated
Preferred Stock at the address for such holder last shown on the records of the
transfer agent therefor (or the records of the Corporation, if it serves as its
own transfer agent), not less than 20 days prior to the Mandatory Redemption
Date.
(b) If the funds of the Corporation legally available for redemption
of the Designated Preferred Stock on any Mandatory Redemption Date are
insufficient to redeem the number of shares of the Designated Preferred Stock
required under this Section 6 to be redeemed on such date, those funds which are
legally available will be used to redeem the maximum possible number of such
shares ratably in proportion to the respective amounts which would otherwise be
payable to the holders of Designated Preferred Stock if the funds of the
Corporation legally available therefor had been sufficient to redeem all shares
required to be redeemed on such date. At any time thereafter when additional
funds of the Corporation become legally available for the redemption of the
Designated Preferred Stock, such funds will be used, at the end of the next
succeeding fiscal quarter, to redeem, to the extent of the available funds and
in the same proportion as set forth in the preceding sentence, the balance of
the shares which the Corporation was theretofore obligated to redeem.
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<PAGE>
(c) Unless there shall have been a default in payment of the
Mandatory Redemption Price, on the applicable Mandatory Redemption Date all
rights of each holder of shares of Designated Preferred Stock as a stockholder
of the Corporation by reason of the ownership of such shares will cease, except
the right to receive the Mandatory Redemption Price for such shares, without
interest, upon presentation and surrender of the certificate representing such
shares, and such shares will not from and after such Mandatory Redemption Date
be deemed to be outstanding.
(d) Any Designated Preferred Stock redeemed pursuant to this
Section 6 will be cancelled and will not under any circumstances be reissued,
sold or transferred and the Corporation may from time to time take such
appropriate action as may be necessary to reduce the authorized number of shares
of Designated Preferred Stock accordingly.
7. Negative Covenants.
------------------
(a) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series A Preferred Stock so
as to affect adversely the Series A Preferred Stock, without the written consent
or affirmative vote of the holders of at least a majority of the then
outstanding shares of Series A Preferred Stock, given in writing or by vote at a
meeting, consenting or voting, as the case may be, separately as a class;
provided that if any such amendment, alteration or repeal adversely affects all
of the Designated Preferred Stock in the same manner, such amendment or repeal
shall require only the written consent or affirmative vote of the holders of at
least a majority of the then outstanding shares of Designated Preferred Stock,
acting as a single class.
(b) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series B Preferred Stock so
as to affect adversely the Series B Preferred Stock, without the written consent
or affirmative vote of the holders of at least a majority of the then
outstanding shares of Series B Preferred Stock, given in writing or by vote at a
meeting, consenting or voting, as the case may be, separately as a class;
provided that if any such amendment, alteration or repeal adversely affects all
of the Designated Preferred Stock in the same manner, such amendment or repeal
shall require only the written consent or affirmative vote of the holders of at
least a majority of the then outstanding shares of Designated Preferred Stock,
acting as a single class.
(c) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series C Preferred Stock so
as to affect adversely the Series C Preferred Stock, without the written consent
or affirmative vote of the holders of at least a majority of the then
outstanding shares of Series C Preferred Stock, given in writing or by vote at a
meeting, consenting or voting, as the case may be, separately as a class;
provided that if any such amendment, alteration or repeal
-22-
<PAGE>
adversely affects all of the Designated Preferred Stock in the same manner, such
amendment or repeal shall require only the written consent or affirmative vote
of the holders of at least a majority of the then outstanding shares of
Designated Preferred Stock, acting as a single class.
(d) So long as at least 5,000,000 shares of Designated Preferred
Stock (subject to appropriate adjustment in the event of any dividend, stock
split, combination or other similar recapitalization affecting such shares) are
outstanding (or such lesser number of shares of Designated Preferred Stock as
are then outstanding if the Corporation has, prior to such time, failed to
redeem shares of Designated Preferred Stock when such redemption was due in
accordance with Section 6 above), the Corporation shall not, without the prior
written consent of the holders of shares of Designated Preferred Stock
representing at least a majority of the combined votes represented by the
outstanding shares of Designated Preferred Stock:
(i) authorize any shares of capital stock with preference or
priority over the Designated Preferred Stock as to the right to receive either
dividends or amounts distributable upon liquidation, dissolution or winding up
of the Corporation or with superior vesting or redemption rights;
(ii) amend the Corporation's By-laws in a manner adverse to the
holders of the Designated Preferred Stock;
(iii) declare or pay any dividends on Common Stock other than
dividends payable solely in Common Stock;
(iv) redeem, repurchase or otherwise acquire (or pay into or set
aside a sinking fund for such purpose) any shares of Common Stock at a price
greater than the price at which they were originally issued;
(v) liquidate, dissolve or wind-up the Corporation;
(vi) make (or permit any subsidiary to make) any loan or advance
to any person, including without limitation, any employee or director of the
Corporation or any subsidiary, except (A) advances and similar expenditures in
the ordinary course of business or (B) as approved by the Board of Directors; or
(vii) (A) merge with or into or consolidate with any other
corporation (other than a merger of consolidation in which the stockholders of
the Company immediately prior thereto own at least 80% of the outstanding voting
stock of the surviving or acquiring corporation), (B) sell, lease, or otherwise
dispose of all or substantially all, or a Significant Portion (as defined
below), of its properties or assets (for this purpose, "Significant Portion"
shall mean properties or assets with a fair market value equal to more than 35%
of the book value of the Company's total
-23-
<PAGE>
properties or assets as of the end of the most recent fiscal quarter), or (C)
acquire all or substantially all of the properties or assets of any other
corporation or entity (except for consideration of less than 20% of the
Corporation's consolidated net worth as of the end of the prior fiscal quarter.
-24-
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by its President this 25th day of February, 1999.
Sycamore Networks, Inc.
By: /s/ Daniel Smith
------------------
Daniel Smith
President
-25-
<PAGE>
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF AMENDMENT
OF
SYCAMORE NETWORKS, INC.
________________________________________________________________________________
Sycamore Networks, Inc., organized and existing under and by virtue of the
General Corporation Law of the State of Delaware
Does Hereby Certify THAT:
1. The name of the corporation is Sycamore Networks, Inc. (hereinafter
called the "Corporation").
2. A Certificate of Amendment of the Corporation (the "Certificate") was
filed by the Secretary of State of the State of Delaware on February 25, 1999
and that said Certificate requires correction as permitted by Section 103 of the
General Corporation Law of the State of Delaware.
3. The inaccuracy in said Certificate is as follows:
That as a result of a typographical error, the word "vesting" described in
the last sentence of Section C.7(d)(i) of ARTICLE FOURTH of the Certificate
setting forth the amending resolution was incorrect, and should be replaced with
the word "voting."
4. That the corrected version of the resolution setting forth the
amendment to be effected by the original Certificate of Amendment is as follows:
RESOLVED: That Section C.7(d)(i) of ARTICLE FOURTH of the Certificate of
- --------
Incorporation of the Corporation be and hereby is deleted and the
following paragraph is inserted in lieu thereof:
"(i) authorize any shares of capital stock with preference
or priority over the Designated Preferred Stock as to the
right to receive either dividends or amounts distributable
upon liquidation, dissolution or winding up of the
Corporation or with superior voting or redemption rights;"
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Correction to be signed by its President this 4th of April, 1999.
SYCAMORE NETWORKS, INC.
By: /s/Daniel Smith
----------------
Daniel Smith
President
-2-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SYCAMORE NETWORKS, INC.
Sycamore Networks, Inc. (the "Corporation"), organized and existing under
and by virtue of the General Law of the State of Delaware, does hereby certify
as follows:
The Board of Directors of the Corporation duly adopted, pursuant to Section
242 of the General Corporation Law of Delaware, a resolution setting forth an
amendment to the Certificate of Incorporation of the Corporation and declaring
said amendment to be advisable. The stockholders of the Corporation duly
approved said proposed amendment in accordance with Section 242 of the General
Corporation Law of the State of Delaware by written consent in accordance with
Sections 228 and 242 of the General Corporation Law of the State of Delaware,
and written notice of such consent has been given to all stockholders who have
not consented in writing to said amendment. The resolution setting forth the
amendment is as follows:
RESOLVED: That Article FOURTH of the Certificate of Incorporation of
--------
the Corporation be and hereby is deleted in its entirety and the following
Article FOURTH is inserted in lieu thereof:
FOURTH: The total number of shares of all classes of stock which the
------
Corporation shall have authority to issue is 48,000,000 shares, consisting
of (i) 32,000,000 shares of Common Stock, $.001 par value per share
("Common Stock"), and (ii) 16,000,000 shares of Preferred Stock, $.01 par
value per share ("Preferred Stock"), 8,975,000 shares of which have been
designated as Series A Convertible Preferred Stock ("Series A Preferred
Stock"), 3,625,000 shares of which have been designated as
<PAGE>
Series B Convertible Preferred Stock ("Series B Preferred Stock"),
2,500,000 shares of which have been designated as Series C Convertible
Preferred Stock ("Series C Preferred Stock"), and 692,201 shares of which
have been designated as Series D Convertible Preferred Stock ("Series D
Preferred Stock", together with the Series A Preferred Stock, Series B
Preferred Stock and the Series C Preferred Stock the "Designated Preferred
Stock").
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Corporation.
A. Common Stock.
------------
1. General. 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
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one vote for
------
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. Dividends. Dividends may be declared and paid on the Common Stock from
---------
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
-----------
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. Preferred Stock.
---------------
Preferred Stock may be issued from time to time in one or more series, each
of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of
-2-
<PAGE>
the Corporation as hereinafter provided. Any shares of Preferred Stock which may
be redeemed, purchased or acquired by the Corporation may be reissued except as
otherwise provided by law. Different series of Preferred Stock shall not be
construed to constitute different classes of shares for the purposes of voting
by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issue of the shares thereof, to determine and fix such voting powers, full
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of Delaware. Without
limiting the generality of the foregoing, the resolutions providing for issuance
of any series of Preferred Stock may provide that such series shall be superior
or rank equally or be junior to the Preferred Stock of any other series to the
extent permitted by law. Except as otherwise provided in this Certificate of
Incorporation, no vote of the holders of the Preferred Stock or Common Stock
shall be a prerequisite to the designation or issuance of any shares of any
series of the Preferred Stock authorized by and complying with the conditions of
this Certificate of Incorporation, the right to have such vote being expressly
waived by all present and future holders of the capital stock of the
Corporation.
C. Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
----------------------------------------------------------------------------
and Series D Preferred Stock.
- ----------------------------
1. Dividends.
---------
(a) The Corporation shall not declare or pay any dividends or
distributions (as defined below) on shares of Common Stock until the holders of
the Designated Preferred Stock then outstanding shall have first received, or
simultaneously receive, a like distribution on each outstanding share of
Designated Preferred Stock, in an amount at least equal to the product of (i)
the per share amount, if any, of the dividends or distributions to be declared,
paid or set aside for the Common Stock, multiplied by (ii) the number of whole
shares of Common Stock into which such share of Designated Preferred Stock is
convertible as of the record date for such dividend or distribution.
(b) For purposes of this Section 1, "distribution" shall mean the
transfer of cash or property without consideration, whether by way of dividend
or otherwise, payable other than in Common Stock or other securities of the
Corporation, or the purchase or redemption of shares of the Corporation (other
than repurchases of
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<PAGE>
Common Stock held by employees or directors of, or consultants to, the
Corporation upon termination of their employment or services pursuant to
agreements approved by the Board of Directors providing for such repurchase at a
price equal to the original issue price of such shares) for cash or property,
including any such transfer, purchase or redemption by a subsidiary of the
Corporation.
2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations
-----------------------------------------------------------------------
and Asset Sales.
- ---------------
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of
Designated Preferred Stock then outstanding shall be entitled to be paid out of
the assets of the Corporation available for distribution to its stockholders,
after and subject to the payment in full of all amounts required to be
distributed to the holders of any other class or series of stock of the
Corporation ranking on liquidation prior and in preference to the Designated
Preferred Stock, but before any payment shall be made to the holders of Common
Stock or any other class or series of stock ranking on liquidation junior to the
Designated Preferred Stock by reason of their ownership thereof, an amount equal
to $0.91 per share in the case of the Series A Preferred Stock, $3.50 per share
in the case of the Series B Preferred Stock, $8.00 per share in the case of the
Series C Preferred Stock and $21.67 per share in the case of the Series D
Preferred Stock (subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization affecting
such shares), plus any dividends declared but unpaid on such shares. If upon
any such liquidation, dissolution or winding up of the Corporation the remaining
assets of the Corporation available for distribution to its stockholders shall
be insufficient to pay the holders of shares of Designated Preferred Stock the
full amount to which they shall be entitled, the holders of shares of Designated
Preferred Stock and any class or series of stock ranking on liquidation on a
parity with the Designated Preferred Stock shall share ratably in any
distribution of the remaining assets and funds of the Corporation in proportion
to the respective amounts which would otherwise be payable in respect of the
shares held by them upon such distribution if all amounts payable on or with
respect to such shares were paid in full.
(b) After the payment of all preferential amounts required to be paid
to the holders of any class or series of stock of the Corporation ranking on
liquidation prior to and in preference to the Common Stock, upon the
dissolution, liquidation or winding up of the Corporation, the remaining assets
and funds of the Corporation available for distribution to its stockholders
shall be distributed among the holders of shares of Common Stock.
(c) Any (i) merger or consolidation which results in the voting
securities of the Corporation outstanding immediately prior thereto representing
immediately thereafter (either by remaining outstanding or by being converted
into voting
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<PAGE>
securities of the surviving or acquiring entity) less than a majority of the
combined voting power of the voting securities of the Corporation or such
surviving or acquiring entity outstanding immediately after such merger or
consolidation, (ii) sale of all or substantially all of the assets of the
Corporation or (iii) sale of shares of capital stock of the Corporation, in a
single transaction or series of related transactions, representing at least 80%
of the voting power of the voting securities of the Corporation, shall be deemed
to be a liquidation of the Corporation, and all consideration payable to the
stockholders of the Corporation (in the case of a merger or consolidation), or
all consideration payable to the Corporation (net of obligations owed by the
Corporation), together with all other available assets of the Corporation (in
the case of an asset sale), shall be distributed to the holders of capital stock
of the Corporation in accordance with Subsections 2(a) and 2(b) above. The
Corporation shall promptly provide to the holders of shares of Designated
Preferred Stock such information concerning the terms of such merger,
consolidation or asset sale and the value of the assets of the Corporation as
may reasonably be requested by the holders of Designated Preferred Stock. If
applicable, the Corporation shall cause the agreement or plan of merger or
consolidation to provide for a rate at which the shares of capital stock of the
Corporation are converted into or exchanged for cash, new securities or other
property which gives effect to this provision. The amount deemed distributed to
the holders of Designated Preferred Stock upon any such merger or consolidation
shall be the cash or the value of the property, rights or securities distributed
to such holders by the Corporation and/or by the acquiring person, firm or other
entity. The value of such property, rights or other securities shall be
determined in good faith by the Board of Directors of the Corporation.
3. Voting.
------
(a) Each holder of outstanding shares of the Designated Preferred
Stock shall be entitled to the number of votes equal to the number of whole
shares of Common Stock into which the shares of Designated Preferred Stock held
by such holder are convertible (as adjusted from time to time pursuant to
Section 4 hereof) as of the record date, at each meeting of stockholders of the
Corporation (and written actions of stockholders in lieu of meetings) with
respect to any and all matters presented to the stockholders of the Corporation
for their action or consideration. Except as provided by law or by the
provisions of Section 3(b) or Section 7 below or by the provisions establishing
any other series of stock, holders of Designated Preferred Stock and of any
other outstanding series of stock shall vote together with the holders of Common
Stock as a single class.
(b) For so long as at least 2,700,000 shares of Designated Preferred
Stock (subject to appropriate adjustment for stock splits, stock dividends,
combinations and other similar recapitalizations affecting such shares) are
outstanding (or such lesser number of shares of Designated Preferred Stock as
are then outstanding if the Corporation has, prior to such time, failed to
redeem shares of Series A Preferred
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<PAGE>
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock, as the case may be, when such redemption was due in accordance with
Section 6 below), the holders of record of the shares of Designated Preferred
Stock, exclusively and as a separate class, shall be entitled to elect two
members of the Board of Directors of the Corporation. At any meeting held for
the purpose of electing directors, the presence in person or by proxy of the
holders of a majority of the shares of Designated Preferred Stock then
outstanding shall constitute a quorum of the Designated Preferred Stock for the
purpose of electing directors by holders of Designated Preferred Stock. A
vacancy in any directorship filled by the holders of Designated Preferred Stock
shall be filled only by vote or written consent in lieu of a meeting of the
holders of Designated Preferred Stock.
4. Optional Conversion. The holders of Designated Preferred Stock shall
-------------------
have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock
----------------
shall be convertible, at the option of the holder thereof, at any time and from
time to time, and without the payment of additional consideration by the holder
thereof, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing $0.91 by the Series A Conversion Price (as defined
below) in effect at the time of conversion. The "Series A Conversion Price"
shall initially be $0.91. Such Series A Conversion Price, and the rate at which
shares of Series A Preferred Stock may be converted into shares of Common Stock,
shall be subject to adjustment as provided below. Each share of Series B
Preferred Stock shall be convertible, at the option of the holder thereof at any
time and from time to time and without the payment of additional consideration
by the holder thereof, into such number of fully paid and nonassessable shares
of Common Stock as is determined by dividing $3.50 by the Series B Conversion
Price (as defined below) in effect at the time of conversion. The "Series B
Conversion Price" shall initially be $3.50. Such Series B Conversion Price, and
the rate at which shares of Series B Preferred Stock may be converted into
shares of Common Stock, shall be subject to adjustment as provided below. Each
share of Series C Preferred Stock shall be convertible, at the option of the
holder thereof at any time and from time to time and without the payment of
additional consideration by the holder thereof, into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing $8.00 by
the Series C Conversion Price (as defined below) in effect at the time of the
conversion. The "Series C Conversion Price" shall initially be $8.00. Such
Series C Conversion Price, and the rate at which shares of Series C Preferred
Stock may be converted into shares of Common Stock, shall be subject to
adjustment as provided below. Each share of Series D Preferred Stock shall be
convertible, at the option of the holder thereof at any time and from time to
time and without the payment of additional consideration by the holder thereof
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $21.67 by the Series D Conversion Price (as defined
below) in effect at the time of the conversion. The
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<PAGE>
"Series D Conversion Price" shall initially be $21.67. Such Series D Conversion
Price, and the rate at which shares of Series D Preferred Stock may be converted
into shares of Common Stock shall be subject to adjustment as provided below.
In the event of a notice of redemption of any shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred
Stock pursuant to Section 6 hereof, the Conversion Rights of the shares
designated for redemption shall terminate at the close of business on the first
full day preceding the date fixed for redemption, unless the redemption price is
not paid when due, in which case the Conversion Rights for such shares shall
continue until such price is paid in full. In the event of a liquidation of the
Corporation (or deemed liquidation under Section 2(c) hereof), the Conversion
Rights shall terminate at the close of business on the first full business day
preceding the date fixed for the payment of any amounts distributable on
liquidation (or deemed liquidation under Section 2(c) hereof) to the holders of
Designated Preferred Stock.
(b) Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issued upon conversion of the Designated Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price or Series D Conversion Price, as the case may be.
(c) Mechanics of Conversion.
-----------------------
(i) In order for a holder of Designated Preferred Stock to
convert shares of Designated Preferred Stock into shares of Common Stock, such
holder shall surrender the certificate or certificates for such shares of
Designated Preferred Stock, at the office of the transfer agent for such shares
of Designated Preferred Stock (or at the principal office of the Corporation if
the Corporation serves as its own transfer agent), together with written notice
that such holder elects to convert all or any number of the shares of Designated
Preferred Stock represented by such certificate or certificates. Such notice
shall state such holder's name or the names of the nominees in which such holder
wishes the certificate or certificates for shares of Common Stock to be issued.
If required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by a written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
his or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
("Conversion Date"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such holder of Designated
Preferred Stock, or to his or its nominees, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share.
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<PAGE>
(ii) The Corporation shall at all times when Designated Preferred
Stock shall be outstanding, reserve and keep available out of its authorized but
unissued stock, for the purpose of effecting the conversion of Designated
Preferred Stock, such number of its duly authorized shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding Designated Preferred Stock. Before taking any action which would
cause an adjustment reducing the Series A Conversion Price, the Series B
Conversion Price, the Series C Conversion Price or the Series D Conversion Price
below the then par value of the shares of Common Stock issuable upon conversion
of the Series A Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock or the Series D Preferred Stock, as the case may be, the
Corporation will take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Corporation may validly and legally
issue fully paid and nonassessable shares of Common Stock at such adjusted
Series A Conversion Price, Series B Conversion Price, the Series C Conversion
Price or the Series D Conversion Price.
(iii) Upon any such conversion, no adjustment to the Series A
Conversion Price, the Series B Conversion Price, the Series C Conversion Price
or the Series D Conversion Price shall be made for any declared but unpaid
dividends on the Series A Preferred Stock, the Series B Preferred Stock, Series
C Preferred Stock or Series D Preferred Stock, as the case may be, surrendered
for conversion or on the Common Stock delivered upon conversion.
(iv) All shares of Designated Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights, if
any, to receive notices and to vote, shall immediately cease and terminate on
the Conversion Date, except only the right of the holders thereof to receive
shares of Common Stock in exchange therefor and payment of any dividends
declared but unpaid thereon. Any shares of Designated Preferred Stock so
converted shall be retired and cancelled and shall not be reissued, and the
Corporation (without the need for stockholder action) may from time to time take
such appropriate action as may be necessary to reduce the authorized number of
shares of Series A Preferred Stock, Series B Preferred Stock Series C Preferred
Stock or Series D Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other taxes that
may be payable in respect of any issuance or delivery of shares of Common Stock
upon conversion of shares of Designated Preferred Stock pursuant to this Section
4. The Corporation shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of
shares of Common Stock in a name other than that in which the shares of
Designated Preferred Stock so converted were registered, and no such issuance or
delivery shall be made unless and until the person or entity requesting such
issuance has paid to
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<PAGE>
the Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(d) Adjustments to Conversion Price for Diluting Issues:
---------------------------------------------------
(i) Special Definitions. For purposes of this Subsection
-------------------
4(d), the following definitions shall apply:
(A) "Option" shall mean rights, options or
------
warrants to subscribe for, purchase or otherwise acquire Common Stock or
Convertible Securities.
(B) "Original Issue Date" shall mean the date on
-------------------
which a share of Series A Preferred Stock was first issued.
(C) "Convertible Securities" shall mean any
----------------------
evidences of indebtedness, shares or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall
---------------------------------
mean all shares of Common Stock issued (or, pursuant to Subsection 4(d)(iii)
below, deemed to be issued) by the Corporation after the Original Issue Date,
other than:
(I) shares of Common Stock issued or
issuable as a dividend or other
distribution on Designated Preferred
Stock;
(II) shares of Common Stock issued or
issuable by reason of a dividend or
other distribution on shares of Common
Stock that is covered by Subsection
4(e) or 4(f) below;
(III) shares of Common Stock issued or
issuable upon conversion of those
shares of (1) Series A Preferred Stock
sold pursuant to the Series A
Preferred Stock Purchase Agreement
dated as of February 19, 1998, as the
same may be amended from time to time,
(2) Series B Preferred Stock sold
pursuant to the Series B Preferred
Stock Purchase Agreement dated as of
December 3, 1998, as the same may be
amended from time to time, (3) Series
C Preferred Stock sold pursuant to the
Series C Preferred Stock Purchase
Agreement dated as of February 26,
1999, as
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<PAGE>
the same may be amended from
time to time, and (4) Series D
Preferred Stock sold pursuant to the
Series D Preferred Stock Purchase
Agreement dated as of July 23 1999, as
the same may be amended from time to
time.
(IV) up to 8,855,000 shares of Common Stock
(subject to appropriate adjustment for
stock splits, stock dividends,
combinations and other similar
recapitalizations affecting such
shares), plus such additional number
of shares as may be approved by a
majority of the non-employee members
of the Board of Directors of the
Corporation, issued or issuable to
employees or directors of, or
consultants to, the Corporation; and
(V) shares of Common Stock issued to
equipment lessors, as approved by a
majority of the non-employee members
of the Board of Directors of the
Corporation.
(ii) No Adjustment of Conversion Price. No adjustment in
---------------------------------
the number of shares of Common Stock into which the Series A Preferred Stock is
convertible shall be made (a) unless the consideration per share (determined
pursuant to Subsection 4(d)(v)) for an Additional Share of Common Stock issued
or deemed to be issued by the Corporation is less than the applicable Series A
Conversion Price in effect on the date of, and immediately prior to, the issue
of such Additional Shares, or (b) if prior to or within 60 days subsequent to
such issuance, the Corporation receives written notice from the holders of at
least a majority of the then outstanding shares of Series A Preferred Stock,
agreeing that no such adjustment shall be made as a result of the issuance of
Additional Shares of Common Stock. No adjustment in the number of shares of
Common Stock into which the Series B Preferred Stock is convertible shall be
made (a) unless the consideration per share (determined pursuant
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<PAGE>
to Subsection 4(d)(v)) for an Additional Share of Common Stock issued or deemed
to be issued by the Corporation is less than the applicable Series B Conversion
Price in effect on the date of, and immediately prior to, the issue of such
Additional Shares, or (b) if prior to or within 60 days subsequent to such
issuance, the Corporation receives written notice from the holders of at least a
majority of the then outstanding shares of Series B Preferred Stock, agreeing
that no such adjustment shall be made as a result of the issuance of Additional
Shares of Common Stock. No adjustment in the number of shares of Common Stock
into which the Series C Preferred Stock is convertible shall be made (a) unless
the consideration per share (determined pursuant to Subsection 4(d)(v)) for an
Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the applicable Series C Conversion Price in effect on
the date of, and immediately prior to, the issue of such Additional Shares, or
(b) if prior to or within 60 days subsequent to such issuance, the Corporation
receives written notice from the holders of at least a majority of the then
outstanding shares of Series C Preferred Stock, agreeing that no such adjustment
shall be made as a result of the issuance of Additional Shares of Common Stock.
No adjustment in the number of shares of Common Stock into which the Series D
Preferred Stock is convertible shall be made (a) unless the consideration per
share (determined pursuant to Subsection 4(d)(v) for an Additional Share of
Common Stock issued or deemed to be issued by the Corporation is less than the
applicable Series D Conversion Price in effect on the date of, and immediately
prior to, the issuance of such Additional Shares, or (b) if prior to or within
60 days subsequent to such issuance, the Corporation receives written notice
from the holders of at least a majority of the then outstanding shares of Series
D Preferred Stock, agreeing that no such adjustment shall be made as a result of
the issuance of Additional Shares of Common Stock.
(iii) Issue of Securities Deemed Issue of Additional Shares of
--------------------------------------------------------
Common Stock.
- ------------
If the Corporation at any time or from time to time after the Original
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares of Common Stock (as set forth in the instrument relating thereto
without regard to any provision contained therein for a subsequent adjustment of
such number) issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that (1)
for the purpose of adjusting the Series A Conversion Price, Additional Shares of
Common Stock shall not be deemed to have been issued unless the consideration
per share (determined pursuant to Subsection 4(d)(v) hereof) of such Additional
Shares of Common Stock would be less than the applicable Series
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<PAGE>
C Conversion Price in effect on the date of and immediately prior to such issue,
or such record date, and (4) for the purpose of adjusting the Series D
Conversion Price, Additional Shares of Common Stock shall not be deemed to have
been issued unless the consideration per share (determined pursuant to
Subsection 4(d)(v) hereof) of such Additional Shares of Common Stock would be
less than the applicable Series D Conversion Price in effect on the date of and
immediately prior to such issue, or such record date, and provided further that
in any such case in which Additional Shares of Common Stock are deemed to be
issued:
(A) No further adjustment in the Series A Conversion Price, the
Series B Conversion Price, the Series C Conversion Price or Series D Conversion
Price shall be made upon subsequent issue of Convertible Securities or shares of
Common Stock upon exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) If such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase or decrease in
the consideration payable to the Corporation, upon the exercise, conversion or
exchange thereof, the Series A Conversion Price, the Series B Conversion Price,
the Series C Conversion Price or Series D Conversion Price, as applicable,
computed upon the original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based thereon, shall,
upon any such increase or decrease becoming effective, be recomputed to reflect
such increase or decrease insofar as it affects such Options or the rights of
conversion or exchange under such Convertible Securities;
(C) Upon the expiration or termination of any unexercised
Option, the Series A Conversion Price, the Series B Conversion Price, Series C
Conversion Price and Series D Conversion Price, as applicable, shall not be
readjusted, but the Additional Shares of Common Stock deemed issued as the
result of the original issue of such Option shall not be deemed issued for the
purposes of any subsequent adjustment of the Series A Conversion Price, the
Series B Conversion Price, Series C Conversion Price or Series D Conversion
Price, as applicable;
(D) In the event of any change in the number of shares of Common
Stock issuable upon the exercise, conversion or exchange of any Option or
Convertible Security, including, but not limited to, a change resulting from the
anti-dilution provisions thereof, the Series A Conversion Price, the Series B
Conversion Price, Series C Conversion Price and Series D Conversion Price then
in effect shall forthwith be readjusted to such Series A Conversion Price,
Series B Conversion Price, Series C Conversion Price and Series D Conversion
Price as would have obtained had the adjustment which was made upon the issuance
of such Option or Convertible Security not exercised or converted prior to such
change been made upon the basis of such change; and
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<PAGE>
(E) No readjustment pursuant to clause (B) or (D) above
shall have the effect of increasing the Series A Conversion Price, the Series B
Conversion Price, Series C Conversion Price or Series D Conversion Price, as
applicable, to an amount which exceeds the lower of (i) the Series A Conversion
Price, the Series B Conversion Price, the Series C Conversion Price or Series D
Conversion Price, as the case may be, on the original adjustment date, or (ii)
the Series A Conversion Price, the Series B Conversion Price, Series C
Conversion Price or Series D Conversion Price that would have resulted from any
issuances of Additional Shares of Common Stock between the original adjustment
date and such readjustment date.
In the event the Corporation, after the Original Issue Date, amends any
Options or Convertible Securities (whether such Options or Convertible
Securities were outstanding on the Original Issue Date or were issued after the
Original Issue Date) to increase the number of shares issuable thereunder or
decrease the consideration to be paid upon exercise or conversion thereof, then
such Options or Convertible Securities, as so amended, shall be deemed to have
been issued after the Original Issue Date and the provisions of this Subsection
4(d)(iii) shall apply.
(iv) Adjustment of Conversion Price Upon Issuance of Additional
----------------------------------------------------------
Shares of Common Stock.
- ----------------------
(A) In the event the Corporation shall at any time
after the Original Issue Date issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Subsection
4(d)(iii), but excluding shares issued as a stock split or combination as
provided in Subsection 4(e) or upon a dividend or distribution as provided in
Subsection 4(f)), without consideration or for a consideration per share less
than the applicable Series A Conversion Price in effect on the date of and
immediately prior to such issue, then and in such event, such Series A
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series A
Conversion Price by a fraction, (A) the numerator of which shall be (1) the
number of shares of Common Stock outstanding immediately prior to such issue
plus (2) the number of shares of Common Stock which the aggregate consideration
received or to be received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Series A Conversion
Price; and (B) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; provided that, (i) for the purpose
-------- ----
of this Subsection 4(d)(iv), all shares of Common Stock issuable upon exercise
or conversion of Options or Convertible Securities outstanding immediately prior
to such issue shall be deemed to be outstanding, and (ii) for the purpose of
this Subsection 4(d)(iv), the number of shares of Common Stock deemed issuable
upon conversion of such outstanding Convertible Securities shall not give effect
to any
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<PAGE>
adjustments to the conversion price or conversion rate of such Convertible
Securities resulting from the issuance of Additional Shares of Common Stock that
is the subject of this calculation.
(B) In the event the Corporation shall at any time after
the Original Issue Date issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Subsection
4(d)(iii), but excluding shares issued as a stock split or combination as
provided in Subsection 4(e) or upon a dividend or distribution as provided in
Subsection 4(f)), without consideration or for a consideration per share less
than the applicable Series B Conversion Price in effect on the date of and
immediately prior to such issue, then and in such event, such Series B
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series B
Conversion Price by a fraction, (A) the numerator of which shall be (1) the
number of shares of Common Stock outstanding immediately prior to such issue
plus (2) the number of shares of Common Stock which the aggregate consideration
received or to be received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Series B Conversion
Price; and (B) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; provided that, (i) for the purpose
-------- ----
of this Subsection 4(d)(iv), all shares of Common Stock issuable upon exercise
or conversion of Options or Convertible Securities outstanding immediately prior
to such issue shall be deemed to be outstanding, and (ii) for the purpose of
this Subsection 4(d)(iv), the number of shares of Common Stock deemed issuable
upon conversion of such outstanding Convertible Securities shall not give effect
to any adjustments to the conversion price or conversion rate of such
Convertible Securities resulting from the issuance of Additional Shares of
Common Stock that is the subject of this calculation.
(C) In the event the Corporation shall at any time after
the Original Issue Date issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Subsection
4(d)(iii), but excluding shares issued as a stock split or combination as
provided in Subsection 4(e) or upon a dividend or distribution as provided in
Subsection 4(f)), without consideration or for a consideration per share less
than the applicable Series C Conversion Price in effect on the date of and
immediately prior to such issue, then and in such event, such Series C
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series C
Conversion Price by a fraction, (A) the numerator of which shall be (1) the
number of shares of Common Stock outstanding immediately prior to such issue
plus (2) the number of shares of Common Stock which the aggregate consideration
received or to be received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Series C
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<PAGE>
Conversion Price; and (B) the denominator of which shall be the number of shares
of Common Stock outstanding immediately prior to such issue plus the number of
such Additional Shares of Common Stock so issued; provided that, (i) for the
-------- ----
purpose of this Subsection 4(d)(iv), all shares of Common Stock issuable upon
exercise or conversion of Options or Convertible Securities outstanding
immediately prior to such issue shall be deemed to be outstanding, and (ii) for
the purpose of this Subsection 4(d)(iv), the number of shares of Common Stock
deemed issuable upon conversion of such outstanding Convertible Securities shall
not give effect to any adjustments to the conversion price or conversion rate of
such Convertible Securities resulting from the issuance of Additional Shares of
Common Stock that is the subject of this calculation.
(D) In the event the Corporation shall at any time after
the Original Issue Date issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Subsection
4(d)(iii), but excluding shares issued as a stock split or combination as
provided in Subsection 4(e) or upon a dividend or distribution as provided in
Subsection 4(f)), without consideration or for a consideration per share less
than the applicable Series D Conversion Price in effect on the date of and
immediately prior to such issue, then and in such event, such Series D
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series D
Conversion Price by a fraction, (A) the numerator of which shall be (1) the
number of shares of Common Stock outstanding immediately prior to such issue
plus (2) the number of shares of Common Stock which the aggregate consideration
received or to be received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Series D Conversion
Price; and (B) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; provided that, (i) for the purpose
-------- ----
of this Subsection 4(d)(iv), all shares of Common Stock issuable upon exercise
or conversion of Options or Convertible Securities outstanding immediately prior
to such issue shall be deemed to be outstanding, and (ii) for the purpose of
this Subsection 4(d)(iv), the number of shares of Common Stock deemed issuable
upon conversion of such outstanding Convertible Securities shall not give effect
to any adjustments to the conversion price or conversion rate of such
Convertible Securities resulting from the issuance of Additional Shares of
Common Stock that is the subject of this calculation.
(v) Determination of Consideration. For purposes of this
------------------------------
Subsection 4(d), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
-15-
<PAGE>
(A) Cash and Property: Such consideration shall:
-----------------
(I) insofar as it consists of cash, be computed
at the aggregate of cash received by the Corporation, excluding amounts paid or
payable for accrued interest;
(II) insofar as it consists of property other than
cash, be computed at the fair market value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(III) in the event Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (I) and (II) above,
as determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The consideration
----------------------------------
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Subsection 4(d)(iii), relating to Options
and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(vi) Multiple Closing Dates. Notwithstanding any adjustments to
----------------------
the Series A Conversion Price, the Series B Conversion Price, the Series C
Conversion Price and the Series D Conversion Price pursuant to Section 4(d)
hereof, in the event the Corporation shall issue on more than one date
Additional Shares of Common Stock which are comprised of shares of the same
series or class of Convertible Securities, and such issuance dates occur within
a period of no more than 180 days, then, upon the final such issuance, the
Series A Conversion Price, the Series B Conversion Price, the Series C
Conversion Price and the Series D Conversion Price, as
-16-
<PAGE>
the case may be, shall be readjusted to give effect to all such issuances as if
they occurred on the date of the final such issuance (and without giving effect
to any adjustments as a result of such prior issuances within such period).
(e) Adjustment for Stock Splits and Combinations. If the Corporation
--------------------------------------------
shall at any time or from time to time after the Original Issue Date effect a
subdivision of the outstanding Common Stock, the Series A Conversion Price, the
Series B Conversion Price, the Series C Conversion Price, and the Series D
Conversion Price then in effect immediately before that subdivision shall be
proportionately decreased. If the Corporation shall at any time or from time to
time after the Original Issue Date combine the outstanding shares of Common
Stock, the Series A Conversion Price, the Series B Conversion Price, the Series
C Conversion Price and the Series D Conversion Price then in effect immediately
before the combination shall be proportionately increased. Any adjustment under
this paragraph shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(f) Adjustment for Certain Dividends and Distributions. In the event
--------------------------------------------------
the Corporation at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Series A
Conversion Price, the Series B Conversion Price, the Series C Conversion Price
and the Series D Conversion Price, as the case may be, then in effect shall be
decreased as of the time of such issuance or, in the event such a record date
shall have been fixed, as of the close of business on such record date, by
multiplying the Series A Conversion Price, the Series B Conversion Price, the
Series C Conversion Price and the Series D Conversion Price, as the case may be,
then in effect by a fraction:
(1) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such
record date, and
(2) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such
record date plus the number of shares of Common Stock issuable in
payment of such dividend or distribution;
provided, however, that if such record date shall have been fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the Series A Conversion Price, the Series B Conversion Price,
the Series C Conversion Price and the Series D Conversion Price, as the case may
be, shall be recomputed accordingly as of the close of business on such record
date and thereafter the Series A
-17-
<PAGE>
Conversion Price, the Series B Conversion Price, Series C Conversion Price or
Series D Conversion Price, as the case may be, shall be adjusted pursuant to
this paragraph as of the time of actual payment of such dividends or
distributions; and provided further, however, that no such adjustment shall be
made if the holders of the applicable Designated Preferred Stock simultaneously
receive a dividend or other distribution of shares of Common Stock in a number
equal to the number of shares of Common Stock as they would have received if all
outstanding shares of the applicable Designated Preferred Stock had been
converted into Common Stock on the date of such event.
(g) Adjustments for Other Dividends and Distributions. In the event
-------------------------------------------------
the Corporation at any time or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, then and in
each such event provision shall be made so that the holders of Designated
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the amount of securities of the
Corporation that they would have received had the Designated Preferred Stock
been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
conversion date, retained such securities receivable by them as aforesaid during
such period, giving application to all adjustments called for during such period
under this paragraph with respect to the rights of the holders of Designated
Preferred Stock; and provided further, however, that no such adjustment shall be
made if the holders of Designated Preferred Stock simultaneously receive a
dividend or other distribution of such securities in an amount equal to the
amount of such securities as they would have received if all outstanding shares
of Designated Preferred Stock had been converted into Common Stock on the date
of such event.
(h) Adjustment for Reclassification, Exchange, or Substitution. If
----------------------------------------------------------
the Common Stock issuable upon the conversion of the Designated Preferred Stock
shall be changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification, or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for above, or a reorganization, merger, consolidation, or sale of
assets provided for below), then and in each such event the holder of each such
share of Designated Preferred Stock shall have the right thereafter to convert
such share into the kind and amount of shares of stock and other securities and
property receivable, upon such reorganization, reclassification, or other
change, by holders of the number of shares of Common Stock into which such
shares of Designated Preferred Stock might have been converted immediately prior
to such reorganization, reclassification, or change, all subject to further
adjustment as provided herein.
-18-
<PAGE>
(i) Adjustment for Merger or Reorganization, etc. In case of any
--------------------------------------------
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale which is covered by
Subsection 2(c)), each share of Designated Preferred Stock remaining outstanding
after such consolidation, merger or sale, if any, shall thereafter be
convertible (or shall be converted into a security which shall be convertible)
into the kind and amount of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Designated Preferred Stock would have been
entitled upon such consolidation, merger or sale; and, in such case, appropriate
adjustment (as determined in good faith by the Board of Directors) shall be made
in the application of the provisions in this Section 4 set forth with respect to
the rights and interest thereafter of the holders of Designated Preferred Stock,
to the end that the provisions set forth in this Section 4 (including provisions
with respect to changes in and other adjustments of the Series A Conversion
Price, the Series B Conversion Price, Series C Conversion Price) and Series D
Conversion Price shall thereafter be applicable, as nearly as reasonably may be,
in relation to any shares of stock or other property thereafter deliverable upon
the conversion of the applicable Designated Preferred Stock.
(j) No Impairment. The Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Designated Preferred Stock against impairment.
(k) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Series A Conversion Price, the Series B
Conversion Price, Series C Conversion Price or Series D Conversion Price
pursuant to this Section 4, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
furnish to each holder of Designated Preferred Stock a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Designated Preferred Stock furnish or cause
to be furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the Series A Conversion Price, the Series B
Conversion Price, the Series C Conversion Price or the Series D Conversion Price
then in effect, and (iii) the number of shares of Common Stock and the amount,
if any, of other property which then would be received upon the conversion of
the applicable Designated Preferred Stock.
-19-
<PAGE>
(l) Notice of Record Date. In the event:
---------------------
(i) that the Corporation declares a dividend (or any
other distribution) on its Common Stock payable in
Common Stock or other securities of the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination
of its outstanding shares of Common Stock or a stock
dividend or stock distribution thereon), or of any
consolidation or merger of the Corporation into or
with another corporation, or of the sale of all or
substantially all of the assets of the Corporation;
or
(iv) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Designated Preferred Stock, and shall cause
to be mailed to the holders of Designated Preferred Stock at their last
addresses as shown on the records of the Corporation or such transfer agent, at
least ten days prior to the date specified in (A) below or twenty days before
the date specified in (B) below, a notice stating
(A) the record date of such dividend, distribution, subdivision or
combination, or, if a record is not to be taken, the date as of
which the holders of Common Stock of record to be entitled to
such dividend, distribution, subdivision or combination are to
be determined, or
(B) the date on which such reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up is expected to
become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property
deliverable upon such reclassification, consolidation, merger,
sale, dissolution or winding up.
-20-
<PAGE>
5. Mandatory Conversion.
--------------------
(a) Upon the earlier of (x) the closing of the sale of shares of
Common Stock, at a price of at least $29.00 per share (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other similar
recapitalizations affecting such shares), in a firm commitment underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, resulting in at least $10,000,000 of
proceeds to the Corporation (net of the underwriting discounts or commissions
and offering expenses) and (y) the first date on which at least 10,000,000
shares of Designated Preferred Stock have been converted into Common Stock
pursuant to Section 4 above (the "Mandatory Conversion Date"), (i) all
outstanding shares of Designated Preferred Stock shall automatically be
converted into shares of Common Stock, at the then effective conversion rate,
and (ii) all provisions hereof included under the captions "Series A Convertible
Preferred Stock", "Series B Convertible Preferred Stock", "Series C Convertible
Preferred Stock" and "Series D Convertible Preferred Stock" and all references
herein to the Series A Preferred Stock, the Series B Preferred Stock, the Series
C Preferred Stock and Series D Preferred Stock (including all references to
Designated Preferred Stock), shall be deleted and shall be of no further force
or effect.
(b) All holders of record of shares of Designated Preferred Stock
shall be given written notice of the Mandatory Conversion Date and the place
designated for mandatory conversion of all such shares of Designated Preferred
Stock, pursuant to this Section 5. Such notice need not be given in advance of
the occurrence of a Mandatory Conversion Date. Such notice shall be sent by
first class or registered mail, postage prepaid, to each record holder of
Designated Preferred Stock at such holder's address last shown on the records of
the transfer agent for the applicable Designated Preferred Stock (or the records
of the Corporation, if it serves as its own transfer agent). Upon receipt of
such notice, each holder of shares of Designated Preferred Stock shall surrender
his or its certificate or certificates for all such shares to the Corporation at
the place designated in such notice, and shall thereafter receive certificates
for the number of shares of Common Stock to which such holder is entitled
pursuant to this Section 5. On the Mandatory Conversion Date, all rights with
respect to the Designated Preferred Stock so converted, including the rights, if
any, to receive notices and vote (other than as a holder of Common Stock) will
terminate, except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefor, to receive certificates for the
number of shares of Common Stock into which such Designated Preferred Stock has
been converted, and payment of any declared but unpaid dividends thereon. If so
required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
by his or its attorney duly authorized in writing. As soon as practicable after
the Mandatory Conversion Date and the surrender of the certificate or
certificates for Designated Preferred Stock the
-21-
<PAGE>
Corporation shall cause to be issued and delivered to such holder, or on his or
its written order, a certificate or certificates for the number of full shares
of Common Stock issuable on such conversion in accordance with the provisions
hereof and cash as provided in Subsection 4(b) in respect of any fraction of a
share of Common Stock otherwise issuable upon such conversion.
(c) All certificates evidencing shares of Designated Preferred Stock
which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Date, be deemed
to have been retired and cancelled and the shares of Designated Preferred Stock
represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. The Corporation may thereafter take such
appropriate action (without the need for stockholder action) as may be necessary
to reduce the authorized Designated Preferred Stock accordingly.
6.Redemption.
----------
(a) The Corporation will, subject to the conditions set forth below,
on February 26, 2004, February 26, 2005 and February 26, 2006 (each, a
"Mandatory Redemption Date"), upon receipt not less than 30 nor more than 120
days prior to the applicable Mandatory Redemption Date of written request(s) for
redemption from holders of at least a majority of the shares of Designated
Preferred Stock then outstanding (a "Redemption Request"), redeem from each
holder of shares of Designated Preferred Stock, at a price equal to $0.91 per
share in the case of the Series A Preferred Stock, $3.50 per share in the case
of the Series B Preferred Stock, $8.00 per share in the case of the Series C
Preferred Stock and $21.67 per share in the case of Series D Preferred Stock
(subject to appropriate adjustment in the event of any dividend, stock split,
combination or other similar recapitalization affecting such shares), plus any
declared but unpaid dividends thereon (the "Redemption Price"), the following
respective portions of the number of shares of Designated Preferred Stock held
by such holder set forth opposite the applicable Redemption Date:
<TABLE>
<CAPTION>
Portion of then
Outstanding Shares of
Mandatory Designated Preferred Stock
Redemption Date To Be Redeemed
--------------- ------------------------
<S> <C>
February 26, 2004 33 1/3%
February 26, 2005 50%
February 26, 2006 All Shares then held
</TABLE>
The Corporation shall provide notice of its redemption obligations under this
Section 6, by first class or registered mail, postage prepaid, to each holder of
record
-22-
<PAGE>
of Designated Preferred Stock at the address for such holder last shown on the
records of the transfer agent therefor (or the records of the Corporation, if it
serves as its own transfer agent), not less than 120 nor more than 180 days
prior to the applicable Mandatory Redemption Date. The Corporation shall provide
notice of any Redemption Request, specifying the time and place of redemption
and the Mandatory Redemption Price, by first class or registered mail, postage
prepaid, to each holder of record of Designated Preferred Stock at the address
for such holder last shown on the records of the transfer agent therefor (or the
records of the Corporation, if it serves as its own transfer agent), not less
than 20 days prior to the Mandatory Redemption Date.
(b) If the funds of the Corporation legally available for redemption
of the Designated Preferred Stock on any Mandatory Redemption Date are
insufficient to redeem the number of shares of the Designated Preferred Stock
required under this Section 6 to be redeemed on such date, those funds which are
legally available will be used to redeem the maximum possible number of such
shares ratably in proportion to the respective amounts which would otherwise be
payable to the holders of Designated Preferred Stock if the funds of the
Corporation legally available therefor had been sufficient to redeem all shares
required to be redeemed on such date. At any time thereafter when additional
funds of the Corporation become legally available for the redemption of the
Designated Preferred Stock, such funds will be used, at the end of the next
succeeding fiscal quarter, to redeem, to the extent of the available funds and
in the same proportion as set forth in the preceding sentence, the balance of
the shares which the Corporation was theretofore obligated to redeem.
(c) Unless there shall have been a default in payment of the
Mandatory Redemption Price, on the applicable Mandatory Redemption Date all
rights of each holder of shares of Designated Preferred Stock as a stockholder
of the Corporation by reason of the ownership of such shares will cease, except
the right to receive the Mandatory Redemption Price for such shares, without
interest, upon presentation and surrender of the certificate representing such
shares, and such shares will not from and after such Mandatory Redemption Date
be deemed to be outstanding.
(d) Any Designated Preferred Stock redeemed pursuant to this Section
6 will be cancelled and will not under any circumstances be reissued, sold or
transferred and the Corporation may from time to time take such appropriate
action as may be necessary to reduce the authorized number of shares of
Designated Preferred Stock accordingly.
7. Negative Covenants.
------------------
(a) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series A Preferred Stock so
as to affect adversely
-23-
<PAGE>
the Series A Preferred Stock, without the written consent or affirmative vote of
the holders of at least a majority of the then outstanding shares of Series A
Preferred Stock, given in writing or by vote at a meeting, consenting or voting,
as the case may be, separately as a class; provided that if any such amendment,
alteration or repeal adversely affects all of the Designated Preferred Stock in
the same manner, such amendment or repeal shall require only the written consent
or affirmative vote of the holders of at least a majority of the then
outstanding shares of Designated Preferred Stock, acting as a single class.
(b) The Corporation shall not amend, alter or repeal the preferences,
special rights or other powers of the Series B Preferred Stock so as to affect
adversely the Series B Preferred Stock, without the written consent or
affirmative vote of the holders of at least a majority of the then outstanding
shares of Series B Preferred Stock, given in writing or by vote at a meeting,
consenting or voting, as the case may be, separately as a class; provided that
if any such amendment, alteration or repeal adversely affects all of the
Designated Preferred Stock in the same manner, such amendment or repeal shall
require only the written consent or affirmative vote of the holders of at least
a majority of the then outstanding shares of Designated Preferred Stock, acting
as a single class.
(c) The Corporation shall not amend, alter or repeal the preferences,
special rights or other powers of the Series C Preferred Stock so as to affect
adversely the Series C Preferred Stock, without the written consent or
affirmative vote of the holders of at least a majority of the then outstanding
shares of Series C Preferred Stock, given in writing or by vote at a meeting,
consenting or voting, as the case may be, separately as a class; provided that
if any such amendment, alteration or repeal adversely affects all of the
Designated Preferred Stock in the same manner, such amendment or repeal shall
require only the written consent or affirmative vote of the holders of at least
a majority of the then outstanding shares of Designated Preferred Stock, acting
as a single class.
(d) The Corporation shall not amend, alter or repeal the preferences,
special rights or other powers of the Series D Preferred Stock so as to affect
adversely the Series D Preferred Stock, without the written consent or
affirmative vote of the holders of at least a majority of the then outstanding
shares of Series D Preferred Stock, given in writing or by vote at a meeting,
consenting or voting, as the case may be, separately as a class; provided that
if any such amendment, alteration or repeal adversely affects all of the
Designated Preferred Stock in the same manner, such amendment or repeal shall
require only the written consent or affirmative vote of the holders of at least
a majority of the then outstanding shares of Designated Preferred Stock, acting
as a single class.
(e) So long as at least 5,500,000 shares of Designated Preferred Stock
(subject to appropriate adjustment in the event of any dividend, stock split,
-24-
<PAGE>
combination or other similar recapitalization affecting such shares) are
outstanding (or such lesser number of shares of Designated Preferred Stock as
are then outstanding if the Corporation has, prior to such time, failed to
redeem shares of Designated Preferred Stock when such redemption was due in
accordance with Section 6 above), the Corporation shall not, without the prior
written consent of the holders of shares of Designated Preferred Stock
representing at least a majority of the combined votes represented by the
outstanding shares of Designated Preferred Stock:
(i) authorize any shares of capital stock with preference or
priority over the Designated Preferred Stock as to the right to receive either
dividends or amounts distributable upon liquidation, dissolution or winding up
of the Corporation or with superior vesting or redemption rights;
(ii) amend the Corporation's By-laws in a manner adverse to the
holders of the Designated Preferred Stock;
(iii) declare or pay any dividends on Common Stock other than
dividends payable solely in Common Stock;
(iv) redeem, repurchase or otherwise acquire (or pay into or set
aside a sinking fund for such purpose) any shares of Common Stock at a price
greater than the price at which they were originally issued;
(v) liquidate, dissolve or wind-up the Corporation;
(vi) make (or permit any subsidiary to make) any loan or advance
to any person, including without limitation, any employee or director of the
Corporation or any subsidiary, except (A) advances and similar expenditures in
the ordinary course of business or (B) as approved by the Board of Directors; or
(vii) (A) merge with or into or consolidate with any other
corporation (other than a merger of consolidation in which the stockholders of
the Company immediately prior thereto own at least 80% of the outstanding voting
stock of the surviving or acquiring corporation), (B) sell, lease, or otherwise
dispose of all or substantially all, or a Significant Portion (as defined
below), of its properties or assets (for this purpose, "Significant Portion"
shall mean properties or assets with a fair market value equal to more than 35%
of the book value of the Company's total properties or assets as of the end of
the most recent fiscal quarter), or (C) acquire all or substantially all of the
properties or assets of any other corporation or entity (except for
consideration of less than 20% of the Corporation's consolidated net worth as of
the end of the prior fiscal quarter.
-25-
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by its President this 23rd day of July, 1999.
Sycamore Networks, Inc.
By: /s/ Daniel Smith
------------------
Daniel Smith
President
-26-
<PAGE>
Exhibit 3.3
BY-LAWS
OF
SYCAMORE NETWORKS, INC.
<PAGE>
BY-LAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 - Stockholders............................................. 1
1.1 Place of Meetings.................................... 1
-----------------
1.2 Annual Meeting....................................... 1
--------------
1.3 Special Meetings..................................... 1
----------------
1.4 Notice of Meetings................................... 1
------------------
1.5 Voting List.......................................... 2
-----------
1.6 Quorum............................................... 2
------
1.7 Adjournments......................................... 2
------------
1.8 Voting and Proxies................................... 2
------------------
1.9 Action at Meeting.................................... 2
-----------------
1.10 Action without Meeting............................... 3
----------------------
ARTICLE 2 - Directors................................................ 3
2.1 General Powers....................................... 3
--------------
2.2 Number; Election and Qualification................... 3
----------------------------------
2.3 Enlargement of the Board............................. 3
------------------------
2.4 Tenure............................................... 3
------
2.5 Vacancies............................................ 4
---------
2.6 Resignation.......................................... 4
-----------
2.7 Regular Meetings..................................... 4
----------------
2.8 Special Meetings..................................... 4
----------------
2.9 Notice of Special Meetings........................... 4
--------------------------
2.10 Meetings by Telephone Conference Calls............... 4
--------------------------------------
2.11 Quorum............................................... 5
------
2.12 Action at Meeting.................................... 5
-----------------
2.13 Action by Consent.................................... 5
-----------------
2.14 Removal.............................................. 5
-------
2.15 Committees........................................... 5
----------
2.16 Compensation of Directors............................ 6
-------------------------
ARTICLE 3 - Officers................................................. 6
3.1 Enumeration.......................................... 6
-----------
3.2 Election............................................. 6
--------
3.3 Qualification........................................ 6
-------------
3.4 Tenure............................................... 6
------
3.5 Resignation and Removal.............................. 6
-----------------------
3.6 Vacancies............................................ 7
---------
3.7 Chairman of the Board and Vice-Chairman of the Board. 7
----------------------------------------------------
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
3.8 President............................................. 7
---------
3.9 Vice Presidents....................................... 7
---------------
3.10 Secretary and Assistant Secretaries................... 8
-----------------------------------
3.11 Treasurer and Assistant Treasurers.................... 8
----------------------------------
3.12 Salaries.............................................. 8
--------
ARTICLE 4 - Capital Stock............................................. 9
4.1 Issuance of Stock..................................... 9
-----------------
4.2 Certificates of Stock................................. 9
---------------------
4.3 Transfers............................................. 9
---------
4.4 Lost, Stolen or Destroyed Certificates................ 11
--------------------------------------
4.5 Record Date........................................... 11
-----------
ARTICLE 5 - General Provisions........................................ 11
5.1 Fiscal Year........................................... 11
-----------
5.2 Corporate Seal........................................ 11
--------------
5.3 Waiver of Notice...................................... 12
----------------
5.4 Voting of Securities.................................. 12
--------------------
5.5 Evidence of Authority................................. 12
---------------------
5.6 Certificate of Incorporation.......................... 12
----------------------------
5.7 Transactions with Interested Parties.................. 12
------------------------------------
5.8 Severability.......................................... 13
------------
5.9 Pronouns.............................................. 13
--------
ARTICLE 6 - Amendments................................................ 13
6.1 By the Board of Directors............................. 13
-------------------------
6.2 By the Stockholders................................... 13
-------------------
</TABLE>
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<PAGE>
BY-LAWS
OF
SYCAMORE NETWORKS, INC.
ARTICLE 1 - Stockholders
------------------------
1.1 Place of Meetings. All meetings of stockholders shall be held at such
-----------------
place within or without the State of Delaware as may be designated from time to
time by the Board of Directors or the President or, if not so designated, at the
registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the
--------------
election of directors and for the transaction of such other business as may
properly be brought before the meeting shall be held on a date to be fixed by
the Board of Directors or the President (which date shall not be a legal holiday
in the place where the meeting is to be held) at the time and place to be fixed
by the Board of Directors or the President and stated in the notice of the
meeting. If no annual meeting is held in accordance with the foregoing
provisions, the Board of Directors shall cause the meeting to be held as soon
thereafter as convenient. If no annual meeting is held in accordance with the
foregoing provisions, a special meeting may be held in lieu of the annual
meeting, and any action taken at that special meeting shall have the same effect
as if it had been taken at the annual meeting, and in such case all references
in these By-laws to the annual meeting of the stockholders shall be deemed to
refer to such special meeting.
1.3 Special Meetings. Special meetings of stockholders may be called at
----------------
any time by the President or by the Board of Directors. Business transacted at
any special meeting of stockholders shall be limited to matters relating to the
purpose or purposes stated in the notice of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
------------------
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
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<PAGE>
1.5 Voting List. The officer who has charge of the stock ledger of the
-----------
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the city where the meeting is to
be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time of the meeting, and may be inspected by any
stockholder who is present.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
------
Incorporation or these By-laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any
------------
other time and to any other place at which a meeting of stockholders may be held
under these By-laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
------------------
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to
vote at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may vote or express such consent or dissent
in person or may authorize another person or persons to vote or act for him by
written proxy executed by the stockholder or his authorized agent and delivered
to the Secretary of the corporation. No such proxy shall be voted or acted upon
after three years from the date of its execution, unless the proxy expressly
provides for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, the
-----------------
holders of shares of stock representing a majority of the votes cast on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of shares of stock of
that class representing a
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<PAGE>
majority of the votes cast on a matter) shall decide any matter to be voted upon
by the stockholders at such meeting, except when a different vote is required by
express provision of law, the Certificate of Incorporation or these By-Laws.
When a quorum is present at any meeting, any election by stockholders shall be
determined by a plurality of the votes cast on the election.
1.10 Action without Meeting. Any action required or permitted to be taken
----------------------
at any annual or special meeting of stockholders of the corporation may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote on such action were present and voted. Prompt notice of the
taking of corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
ARTICLE 2 - Directors
----------------------
2.1 General Powers. The business and affairs of the corporation shall be
--------------
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the corporation except as otherwise provided by law or the
Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
2.2 Number; Election and Qualification. The number of directors which
----------------------------------
shall constitute the whole Board of Directors shall be determined by resolution
of the stockholders or the Board of Directors, but in no event shall be less
than one. The number of directors may be decreased at any time and from time to
time either by the stockholders or by a majority of the directors then in
office, but only to eliminate vacancies existing by reason of the death,
resignation, removal or expiration of the term of one or more directors. The
directors shall be elected at the annual meeting of stockholders by such
stockholders as have the right to vote on such election. Directors need not be
stockholders of the corporation.
2.3 Enlargement of the Board. The number of directors may be increased at
------------------------
any time and from time to time by the stockholders or by a majority of the
directors then in office.
2.4 Tenure. Each director shall hold office until the next annual meeting
------
and until his successor is elected and qualified, or until his earlier death,
resignation or removal.
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<PAGE>
2.5 Vacancies. Unless and until filled by the stockholders, any vacancy
---------
in the Board of Directors, however occurring, including a vacancy resulting from
an enlargement of the Board, may be filled by vote of a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. A director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office, and a director chosen to fill a
position resulting from an increase in the number of directors shall hold office
until the next annual meeting of stockholders and until his successor is elected
and qualified, or until his earlier death, resignation or removal.
2.6 Resignation. Any director may resign by delivering his written
-----------
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.7 Regular Meetings. Regular meetings of the Board of Directors may be
----------------
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.8 Special Meetings. Special meetings of the Board of Directors may be
----------------
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
2.9 Notice of Special Meetings. Notice of any special meeting of
--------------------------
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 48 hours in advance of the meeting, (ii) by sending a telegram or telex,
or delivering written notice by hand, to his last known business or home address
at least 48 hours in advance of the meeting, or (iii) by mailing written notice
to his last known business or home address at least 72 hours in advance of the
meeting. A notice or waiver of notice of a meeting of the Board of Directors
need not specify the purposes of the meeting.
2.10 Meetings by Telephone Conference Calls. Directors or any members of
--------------------------------------
any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
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<PAGE>
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.11 Quorum. A majority of the total number of the whole Board of
------
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
2.12 Action at Meeting. At any meeting of the Board of Directors at which
-----------------
a quorum is present, the vote of a majority of those present shall be sufficient
to take any action, unless a different vote is specified by law, the Certificate
of Incorporation or these By-Laws.
2.13 Action by Consent. Any action required or permitted to be taken at
-----------------
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
2.14 Removal. Except as otherwise provided by the General Corporation Law
-------
of Delaware, any one or more or all of the directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors, except that the directors elected by the holders of
a particular class or series of stock may be removed without cause only by vote
of the holders of a majority of the outstanding shares of such class or series.
2.15 Committees. The Board of Directors may designate one or more
----------
committees, each committee to consist of one or more of the directors of the
corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the corporation
and may authorize the seal of the corporation
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<PAGE>
to be affixed to all papers which may require it. Each such committee shall keep
minutes and make such reports as the Board of Directors may from time to time
request. Except as the Board of Directors may otherwise determine, any committee
may make rules for the conduct of its business, but unless otherwise provided by
the directors or in such rules, its business shall be conducted as nearly as
possible in the same manner as is provided in these By-laws for the Board of
Directors.
2.16 Compensation of Directors. Directors may be paid such compensation
-------------------------
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment
shall preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE 3 - Officers
--------------------
3.1 Enumeration. The officers of the corporation shall consist of a
-----------
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice-Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be elected
--------
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
-------------
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
------
Incorporation or by these By-laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
-----------------------
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any officer may be removed at any time, with or without cause, by vote of a
majority of the entire number of directors then in office.
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<PAGE>
Except as the Board of Directors may otherwise determine, no officer who
resigns or is removed shall have any right to any compensation as an officer for
any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring in
---------
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 Chairman of the Board and Vice-Chairman of the Board. The Board of
----------------------------------------------------
Directors may appoint a Chairman of the Board and may designate the Chairman of
the Board as Chief Executive Officer. If the Board of Directors appoints a
Chairman of the Board, he shall perform such duties and possess such powers as
are assigned to him by the Board of Directors. If the Board of Directors
appoints a Vice-Chairman of the Board, he shall, in the absence or disability of
the Chairman of the Board, perform the duties and exercise the powers of the
Chairman of the Board and shall perform such other duties and possess such other
powers as may from time to time be vested in him by the Board of Directors.
3.8 President. The President shall, subject to the direction of the Board
---------
of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders and, if he is a director, at all
meetings of the Board of Directors. Unless the Board of Directors has designated
the Chairman of the Board or another officer as Chief Executive Officer, the
President shall be the Chief Executive Officer of the corporation. The
President shall perform such other duties and shall have such other powers as
the Board of Directors may from time to time prescribe.
3.9 Vice Presidents. Any Vice President shall perform such duties and
---------------
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
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<PAGE>
3.10 Secretary and Assistant Secretaries. The Secretary shall perform such
-----------------------------------
duties and shall have such powers as the Board of Directors or the President may
from time to time prescribe. In addition, the Secretary shall perform such
duties and have such powers as are incident to the office of the secretary,
including without limitation the duty and power to give notices of all meetings
of stockholders and special meetings of the Board of Directors, to attend all
meetings of stockholders and the Board of Directors and keep a record of the
proceedings, to maintain a stock ledger and prepare lists of stockholders and
their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such powers
as the Board of Directors, the President or the Secretary may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Secretary, the Assistant Secretary, (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting
of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform such
----------------------------------
duties and shall have such powers as may from time to time be assigned to him by
the Board of Directors or the President. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories selected in accordance with these By-laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such powers
as the Board of Directors, the President or the Treasurer may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Treasurer, the Assistant Treasurer, (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.1 Salaries. Officers of the corporation shall be entitled to such
--------
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
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<PAGE>
ARTICLE 4 - Capital Stock
-------------------------
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
-----------------
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the corporation shall
---------------------
be entitled to have a certificate, in such form as may be prescribed by law and
by the Board of Directors, certifying the number and class of shares owned by
him in the corporation. Each such certificate shall be signed by, or in the
name of the corporation by, the Chairman or Vice-Chairman, if any, of the Board
of Directors, or the President or a Vice President, and the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a
facsimile.
Each certificate for shares of stock which are subject to any restriction
on transfer pursuant to the Certificate of Incorporation, the By-laws,
applicable securities laws or any agreement among any number of shareholders or
among such holders and the corporation shall have conspicuously noted on the
face or back of the certificate either the full text of the restriction or a
statement of the existence of such restriction.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of each certificate representing shares of such
class or series of stock, provided that in lieu of the foregoing requirements
there may be set forth on the face or back of each certificate representing
shares of such class or series of stock a statement that the corporation will
furnish without charge to each stockholder who so requests a copy of the full
text of the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
4.3 Transfers. Except as otherwise established by rules and regulations
---------
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or
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<PAGE>
accompanied by a written assignment or power of attorney properly executed, and
with such proof of authority or the authenticity of signature as the corporation
or its transfer agent may reasonably require. Except as may be otherwise
required by law, by the Certificate of Incorporation or by these By-laws, the
corporation shall be entitled to treat the record holder of stock as shown on
its books as the owner of such stock for all purposes, including the payment of
dividends and the right to vote with respect to such stock, regardless of any
transfer, pledge or other disposition of such stock until the shares have been
transferred on the books of the corporation in accordance with the requirements
of these By-laws.
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<PAGE>
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a
--------------------------------------
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as a
-----------
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 10 days after the date of adoption of a
record date for a written consent without a meeting, nor more than 60 days prior
to any other action to which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is properly delivered to the corporation. The record date
for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 5 - General Provisions
------------------------------
5.1 Fiscal Year. Except as from time to time otherwise designated by the
-----------
Board of Directors, the fiscal year of the corporation shall begin on the first
day of January in each year and end on the last day of December in each year.
5.2 Corporate Seal. The corporate seal shall be in such form as shall be
--------------
approved by the Board of Directors.
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<PAGE>
5.3 Waiver of Notice. Whenever any notice whatsoever is required to be
----------------
given by law, by the Certificate of Incorporation or by these By-laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
5.4 Voting of Securities. Except as the directors may otherwise
--------------------
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
5.5 Evidence of Authority. A certificate by the Secretary, or an
---------------------
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
5.6 Certificate of Incorporation. All references in these By-laws to the
----------------------------
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
5.7 Transactions with Interested Parties. No contract or transaction
------------------------------------
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum;
(2) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or
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<PAGE>
(3) The contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
5.8 Severability. Any determination that any provision of these By-laws
------------
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-laws.
5.9 Pronouns. All pronouns used in these By-laws shall be deemed to
--------
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
ARTICLE 6 - Amendments
----------------------
6.1 By the Board of Directors. These By-laws may be altered, amended or
-------------------------
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
6.2 By the Stockholders. These By-laws may be altered, amended or
-------------------
repealed or new by-laws may be adopted by the affirmative vote of the holders of
a majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
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Exhibit 4.3
SECOND AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
-------------------------
This Agreement, dated as of February 26, 1999, is entered into by and among
Sycamore Networks, Inc., a Delaware corporation (the "Company"), the persons and
entities listed on Schedule I hereto under the heading "Investors"
(individually, an "Investor", and collectively, the "Investors") and the persons
listed on Schedule II hereto under the heading "Founders" (individually, a
"Founder" and collectively, the "Founders").
BACKGROUND
----------
WHEREAS, the Company and the Investors have entered into a Series C
Preferred Stock Purchase Agreement of even date herewith (the "Purchase
Agreement");
WHEREAS, the Company, the Investors and others are parties to an Amended
and Restated Investor Rights Agreement, dated as of December 3, 1998, (the
"Prior Agreement"), which Prior Agreement the parties thereto desire to amend
and restate in its entirety pursuant to the terms hereof; and
WHEREAS, the parties hereto wish to provide for (i) the composition of the
Board of Directors of the Company, (ii) certain arrangements with respect to the
registration of shares of capital stock of the Company under the Securities Act
of 1933, and (iii) a right of first refusal with respect to the sale of any
securities of the Company;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, and the consummation of the sale and purchase of
the Series C Convertible Preferred Stock pursuant to the Series C Purchase
Agreement, and for other valuable consideration, receipt of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I. DEFINITIONS
As used in this Agreement, the following terms shall have the following
respective meanings:
"Commission" means the United States Securities and Exchange
----------
Commission, or any other federal agency at the time administering the Securities
Act.
<PAGE>
"Common Stock" means the common stock, $0.001 par value per share, of
------------
the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
or any similar federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"Initial Public Offering" means the sale of shares of Common Stock in
-----------------------
a firm commitment underwritten public offering pursuant to a Registration
Statement at a price to the public of at least $12.00 per share (adjusted for
stock splits, stock dividends and similar events) resulting in proceeds (net of
the underwriting discounts or commissions and offering expenses) to the Company
of at least $10,000,000.
"Registration Statement" means a registration statement filed by the
----------------------
Company with the Commission for a public offering and sale of Common Stock by
the Company (other than a registration statement on Form S-8 or Form S-4, or
their successors, or any other form for a similar limited purpose, or any
registration statement covering only securities proposed to be issued in
exchange for securities or assets of another corporation).
"Registration Expenses" means the expenses described in Section 4 of
---------------------
Article III below.
"Registrable Shares" means (i) the shares of Common Stock issued or
------------------
issuable upon conversion of the Shares, (ii) shares of Common Stock held by
Gururaj Deshpande, Richard Barry, Daniel Smith and Chikong Shue, (iii) any
shares of Common Stock, and any shares of Common Stock issued or issuable upon
the conversion or exercise of any other securities, acquired by the Investors
pursuant to Article IV of this Agreement or pursuant to the Second Amended and
Restated Right of First Refusal and Co-Sale Agreement of even date herewith, as
amended, among the Company, the Investors and others, and (iv) any other shares
of Common Stock issued in respect of such shares (because of stock splits, stock
dividends, reclassifications, recapitalizations, or similar events); provided,
--------
however, that shares of Common Stock which are Registrable Shares shall cease to
- -------
be Registrable Shares (a) upon any sale of such shares pursuant to a
Registration Statement or Rule 144 under the Securities Act, (b) upon any sale
of such shares in any manner to a person or entity which, by virtue of Section 2
of Article V of this Agreement, is not entitled to the rights provided by this
Agreement, or (c) for purposes of Section 2 of Article III hereof, following the
third anniversary of the Initial Public Offering. Wherever reference is made in
this Agreement to a request or consent of holders of a certain percentage of
Registrable Shares, the determination of such percentage shall include shares of
Common Stock issuable upon conversion of the Shares even if such conversion has
not yet been effected.
-2-
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar federal statute, and the rules and regulations of the Commission issued
under such Act, as they each may, from time to time, be in effect.
"Shares" means the shares of Series A Convertible Preferred Stock,
------
Series B Convertible Preferred Stock and Series C Convertible Preferred Stock
held by Stockholders.
"Stockholders" means the Investors, the Founders, and any persons or
------------
entities to whom the rights granted to Investors or Founders under this
Agreement are transferred by an Investor or Founder, or their successors or
permitted assigns, pursuant to Section 2 of Article V below.
ARTICLE II. ELECTION OF DIRECTORS
1. Voting of Shares. In any and all elections of directors of the Company
----------------
(whether at a meeting or by written consent in lieu of a meeting), each
Stockholder shall vote or cause to be voted all Voting Shares (as defined in
Section 2 of Article II below) owned by him, her or it, or over which he, she or
it has voting control, and otherwise use his, her or its respective best
efforts, so as to fix the number of directors at five and to elect as directors
(i) Gururaj Deshpande, (ii) two representatives designated by Matrix Partners V,
L.P. (initially Paul J. Ferri and Timothy Barrows), (iii) the Chief Executive
Officer of the Company, and (iv) one person mutually agreed upon by all of the
other members of the Board of Directors. The obligation of the Stockholders
under this Section 1 to elect as a director designees of Matrix Partners V, L.P.
shall continue only for so long as Matrix Partners V, L.P. (together with any
affiliates, within the meaning of Rule 144 under the Securities Act) owns, after
giving effect to the conversion of all convertible preferred stock into Common
Stock, at least 1,375,000 shares of Common Stock (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other similar
recapitalizations affecting such shares).
2. Voting Shares. "Voting Shares" shall mean and include any and all
-------------
shares of the Common Stock, Shares, and/or shares of capital stock of the
Company, by whatever name called, which carry voting rights (including voting
rights which arise by reason of default).
3. Restrictive Legend. All certificates representing Voting Shares owned
------------------
or hereafter acquired by the Stockholders or any transferee bound by this
Agreement shall have affixed thereto a legend substantially in the following
form:
"The shares of stock represented by this certificate are subject to certain
voting agreements as set forth in a Second Amended and Restated Investor
Rights Agreement by and among the registered owner of this
-3-
<PAGE>
certificate, the Company and certain other stockholders of the Company, a
copy of which is available for inspection at the offices of the Secretary
of the Company."
4. Transfers of Voting Rights. Any transferee to whom Voting Shares are
--------------------------
transferred by a Stockholder, whether voluntarily or by operation of law, shall
be bound by the voting obligations imposed upon the transferor under this
Agreement, to the same extent as if such transferee were a Stockholder
hereunder.
ARTICLE III. REGISTRATION RIGHTS
1. Required Registrations.
----------------------
(a) At any time after the earlier of February 26, 2003 or 180 days
after the closing of the Company's first underwritten public offering of shares
of Common Stock pursuant to a Registration Statement, Stockholders (other than
the Founders) holding in the aggregate at least 35% of the Registrable Shares
held by the Stockholders (other than the Founders) may request, in writing, that
the Company effect the registration on Form S-1 or Form S-2 (or any successor
form) of Registrable Shares owned by such Stockholders having an aggregate
offering price of at least $5,000,000 (based on the market price or fair value
at the time of such request). If the Stockholders initiating the registration
intend to distribute the Registrable Shares by means of an underwriting, they
shall so advise the Company in their request. Thereupon, the Company shall, as
expeditiously as possible, use its best efforts to effect the registration on
Form S-1 or Form S-2 (or any successor form) of all Registrable Shares which the
Company has been requested to so register.
(b) At any time after the Company becomes eligible to file a
Registration Statement on Form S-3 (or any successor form relating to secondary
offerings), a Stockholder or Stockholders may request the Company, in writing,
to effect the registration on Form S-3 (or such successor form), of Registrable
Shares having an aggregate offering price of at least $1,000,000 (based on the
public market price at the time of such request). Thereupon, the Company shall,
as expeditiously as possible, use its best efforts to effect the registration on
Form S-3 (or such successor form) of all Registrable Shares which the Company
has been requested to so register.
(c) The Company shall not be required to effect more than two
registrations pursuant to paragraph (a) above or more than three registrations
pursuant to paragraph (b) above; provided, however, that such obligation shall
-------- -------
be deemed satisfied only when a registration statement covering the applicable
Registrable Shares shall have (i) become effective or (ii) been withdrawn at the
request of the Stockholders requesting such registration (other than as a result
of information concerning the business or financial condition of the Company
which is
-4-
<PAGE>
made known to the Stockholders after the date on which such registration was
requested).
(d) If at the time of any request to register Registrable Shares
pursuant to this Section 1, the Company is engaged or has plans to engage within
90 days of the time of the request in a registered public offering of securities
for its own account or is engaged in any other activity which, in the good faith
determination of the Company's Board of Directors, would be adversely affected
by the requested registration to the material detriment of the Company, then the
Company may at its option direct that such request be delayed for a period not
in excess of three months from the effective date of such offering or the date
of commencement of such other material activity, as the case may be, such right
to delay a request to be exercised by the Company not more than once in any 12-
month period.
2. Incidental Registration.
-----------------------
(a) Whenever the Company proposes to file a Registration Statement at
any time and from time to time, it will, prior to such filing, give written
notice to all Stockholders of its intention to do so and, upon the written
request of a Stockholder or Stockholders, given within 10 business days after
the Company provides such notice (which request shall state the intended method
of disposition of such Registrable Shares), the Company shall use its reasonable
best efforts to cause all Registrable Shares which the Company has been
requested by such Stockholder or Stockholders to register, to be registered
under the Securities Act to the extent necessary to permit their sale or other
disposition in accordance with the intended methods of distribution specified in
the request of such Stockholder or Stockholders; provided, however, that the
-------- -------
Company shall have the right to postpone or withdraw any registration effected
pursuant to this Section 2 without obligation to any Stockholder.
(b) In connection with any registration under this Section 2
involving an underwriting, the Company shall not be required to include any
Registrable Shares in such registration unless the holders thereof accept the
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it. If in the opinion of the managing underwriter it
is desirable because of marketing factors to limit the number of Registrable
Shares to be included in the offering, then the Company shall be required to
include in the registration only that number of Registrable Shares, if any,
which the managing underwriter believes should be included therein; provided,
--------
however, that no persons or entities other than the Company, the Stockholders
- -------
and other persons or entities holding registration rights shall be permitted to
include securities in the offering. If the number of Registrable Shares to be
included in the offering in accordance with the foregoing is less than the total
number of shares which the holders of Registrable Shares have requested to be
included, then the holders of Registrable Shares who have requested registration
and
-5-
<PAGE>
other holders of securities entitled to include them in such registration shall
participate in the registration pro rata based upon their total ownership of
shares of Common Stock (giving effect to the conversion into Common Stock of all
securities convertible thereinto). If any holder would thus be entitled to
include more securities than such holder requested to be registered, the excess
shall be allocated among other requesting holders pro rata in the manner
described in the preceding sentence.
3. Registration Procedures. If and whenever the Company is required by
-----------------------
the provisions of this Agreement to use its best efforts to effect the
registration of any of the Registrable Shares under the Securities Act, the
Company shall:
(a) file with the Commission a Registration Statement with respect to
such Registrable Shares and use its best efforts to cause that Registration
Statement to become effective;
(b) as expeditiously as possible prepare and file with the Commission
any amendments and supplements to the Registration Statement and the prospectus
included in the Registration Statement as may be necessary to keep the
Registration Statement effective, in the case of a firm commitment underwritten
public offering, until each underwriter has completed the distribution of all
securities purchased by it and, in the case of any other offering, until the
earlier of the sale of all Registrable Shares covered thereby or 180 days after
the effective date thereof;
(c) as expeditiously as possible furnish to each selling Stockholder
such reasonable numbers of copies of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as the selling Stockholder may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Shares owned
by the selling Stockholder; and
(d) as expeditiously as possible use its best efforts to register or
qualify the Registrable Shares covered by the Registration Statement under the
securities or Blue Sky laws of such states as the selling Stockholder shall
reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the selling Stockholder to consummate the
public sale or other disposition in such states of the Registrable Shares owned
by the selling Stockholder; provided, however, that the Company shall not be
-------- -------
required in connection with this paragraph (d) to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction.
If the Company has delivered preliminary or final prospectuses to the
selling Stockholders and after having done so the prospectus is amended to
comply with the requirements of the Securities Act, the Company shall promptly
notify the selling Stockholders and, if requested, the selling Stockholder shall
immediately cease
-6-
<PAGE>
making offers of Registrable Shares and return all prospectuses to the Company.
The Company shall promptly provide each selling Stockholder with revised
prospectuses and, following receipt of the revised prospectuses, the selling
Stockholder shall be free to resume making offers of the Registrable Shares.
If, after a registration statement becomes effective, the Company becomes
engaged in any activity which, in the good faith determination of the Company's
Board of Directors, involves information that would have to be disclosed in the
Registration Statement but which the Company desires to keep confidential for
valid business reasons, then the Company may at its option, by notice to such
Stockholders, require that the Stockholders who have included Shares in such
Registration Statement cease sales of such Shares under such Registration
Statement for a period not in excess of three months from the date of such
notice, such right to be exercised by the Company not more than once in any 12-
month period. If, in connection therewith, the Company considers it appropriate
for such Registration Statement to be amended, the Company shall so amend such
Registration Statement as promptly as practicable and such Stockholders shall
suspend any further sales of their Shares until the Company advises them that
such Registration Statement has been amended. The time periods referred to
herein during which such Registration Statement must be kept effective shall be
extended for an additional number of days equal to the number of days during
which the right to sell shares was suspended pursuant to this paragraph.
4. Allocation of Expenses. The Company will pay all Registration
----------------------
Expenses of all registrations under this Agreement. For purposes of this
Section 4, the term "Registration Expenses" shall mean all expenses incurred by
the Company in complying with this Article III, including, without limitation,
all registration and filing fees, exchange listing fees, printing expenses, fees
and expenses of counsel for the Company to represent the selling Stockholder(s),
state Blue Sky fees and expenses, and the expense of any special audits incident
to or required by any such registration, but excluding underwriting discounts,
selling commissions and the fees and expenses of selling Stockholders' own
counsel.
5. Indemnification and Contribution.
--------------------------------
(a) In the event of any registration of any of the Registrable Shares
under the Securities Act pursuant to this Agreement, the Company will indemnify
and hold harmless the seller of such Registrable Shares, each of such sellers',
directors and officers, each underwriter of such Registrable Shares, and each
other person, if any, who controls such seller or underwriter within the meaning
of the Securities Act or the Exchange Act against any losses, claims, damages or
liabilities, joint or several, to which such seller, underwriter or controlling
person may become subject under the Securities Act, the Exchange Act, state
securities or Blue Sky laws or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof)
-7-
<PAGE>
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any Registration Statement under which such
Registrable Shares were registered under the Securities Act, any preliminary
prospectus or final prospectus contained in the Registration Statement, or any
amendment or supplement to such Registration Statement, or arise out of or are
based upon the omission or alleged omission to state a material fact required to
be stated therein or necessary to make the statements therein not misleading;
and the Company will reimburse such seller, underwriter and each such
controlling person for any legal or any other expenses reasonably incurred by
such seller, underwriter or controlling person in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
--------
however, that the Company will not be liable in any such case to a seller,
- -------
underwriter or controlling person to the extent that any such loss, claim,
damage or liability arises out of or is based upon any untrue statement or
omission made in such Registration Statement, preliminary prospectus or final
prospectus, or any such amendment or supplement, in reliance upon and in
conformity with information furnished to the Company, in writing, by or on
behalf of such seller, underwriter or controlling person specifically for use in
the preparation thereof.
(b) In the event of any registration of any of the Registrable Shares
under the Securities Act pursuant to this Agreement, each seller of Registrable
Shares, severally and not jointly, will indemnify and hold harmless the Company,
each of its directors and officers and each underwriter (if any) and each
person, if any, who controls the Company or any such underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages or liabilities, joint or several, to which the Company, such directors
and officers, underwriter or controlling person may become subject under the
Securities Act, Exchange Act, state securities or Blue Sky laws or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement under which
such Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if the statement or omission was made in reliance upon
and in conformity with information relating to such seller furnished in writing
to the Company by or on behalf of such seller specifically for use in connection
with the preparation of such Registration Statement, prospectus, amendment or
supplement; provided, however, that the obligations of each such Stockholder
-------- -------
hereunder shall be limited to an amount equal to the net proceeds to such
Stockholder of Registrable Shares sold in connection with such registration.
-8-
<PAGE>
(c) Each party entitled to indemnification under this Article III,
Section 5 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided, that counsel for the
--------
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld); and, provided further, that the failure of any
----------------
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Article III, Section 5, unless
and except to the extent that the Indemnifying Party is prejudiced by the
failure of the Indemnified Party to provide timely notice. The Indemnified
Party may participate in such defense at such party's expense; provided,
--------
however, that the Indemnifying Party shall pay such expense if representation of
- -------
such Indemnified Party by the counsel retained by the Indemnifying Party would
be inappropriate due to actual or potential differing interests between the
Indemnified Party and any other party represented by such counsel in such
proceeding. No Indemnifying Party, in the defense of any such claim or
litigation shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of such claim or
litigation, and no Indemnified Party shall consent to entry of any judgment or
settle such claim or litigation without the prior written consent of the
Indemnifying Party.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Registrable Shares exercising rights under this Agreement, or any controlling
person of any such holder, makes a claim for indemnification pursuant to this
Article III, Section 5 but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Article III, Section 5 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of any such
selling Stockholder or any such controlling person in circumstances for which
indemnification is provided under this Article III, Section 5; then, in each
such case, the Company and such Stockholder will contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (after
contribution from others) in such proportions so that such holder is responsible
for the portion represented by the percentage that the public offering price of
its Registrable Shares offered by the Registration Statement bears to the public
offering price of all securities offered by such Registration Statement, and the
Company is responsible for the remaining portion; provided, however, that, in
-------- -------
any such case, (A) no such holder will be required to contribute any amount in
excess of the net proceeds to it of all
-9-
<PAGE>
Registrable Shares sold by it pursuant to such Registration Statement, and (B)
no person or entity guilty of fraudulent misrepresentation, within the meaning
of Section 11(f) of the Securities Act, shall be entitled to contribution from
any person or entity who is not guilty of such fraudulent misrepresentation.
6. Indemnification with Respect to Underwritten Offering. In the event
-----------------------------------------------------
that Registrable Shares are sold pursuant to a Registration Statement in an
underwritten offering, the Company agrees to enter into an underwriting
agreement containing customary representations and warranties with respect to
the business and operations of an issuer of the securities being registered and
customary covenants and agreements to be performed by such issuer, including
without limitation customary provisions with respect to indemnification by the
Company of the underwriters of such offering.
7. Information by Holder. Each Stockholder including Registrable Shares
---------------------
in any registration shall furnish to the Company such information regarding such
Stockholder and the distribution proposed by such Stockholder as the Company may
reasonably request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Agreement.
8. "Stand-Off" Agreement. Each Stockholder, if requested by the Company
--------------------
and the managing underwriter of an offering by the Company of Common Stock or
other securities of the Company pursuant to a Registration Statement, shall
agree not to sell publicly or otherwise transfer or dispose of any Registrable
Shares of the Company held by such Stockholder for a specified period of time
(not to exceed 180 days) following the effective date of such Registration
Statement; provided, that:
--------
(a) such agreement shall only apply to the first Registration
Statement covering Common Stock to be sold by or on behalf of the Company to the
public in an underwritten offering; and
(b) all officers and directors of the Company and all selling
stockholders in such offering enter into similar agreements.
9. Limitations on Subsequent Registration Rights. The Company shall not,
---------------------------------------------
without the prior written consent of Investors holding a majority of the
Registrable Shares held by all Investors, enter into any agreement (other than
this Agreement) with any holder or prospective holder of any securities of the
Company which would allow such holder or prospective holder (a) to include
securities of the Company in any Registration Statement upon terms which are
more favorable to such holder or prospective holder than the terms on which
holders of Registrable Shares may include shares in such registration, or (b) to
make a demand registration which could result in such registration statement
being declared effective prior to February 26, 2003.
-10-
<PAGE>
10. Rule 144 Requirements. After the earliest of (a) the closing of the
---------------------
sale of securities of the Company pursuant to a Registration Statement, (b) the
registration by the Company of a class of securities under Section 12 of the
Exchange Act, or (c) the issuance by the Company of an offering circular
pursuant to Regulation A under the Securities Act, the Company agrees to:
(i) comply with the requirements of Rule 144(c) under the Securities
Act with respect to current public information about the Company;
(ii) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements); and
(iii) furnish to any holder of Registrable Shares upon request (A) a
written statement by the Company as to its compliance with the requirements of
said Rule 144(c), and the reporting requirements of the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), (B) a copy of the most recent annual or quarterly report of the
Company, and (C) such other reports and documents of the Company as such holder
may reasonably request to avail itself of any similar rule or regulation of the
Commission allowing it to sell any such securities without registration.
ARTICLE IV. RIGHT OF FIRST REFUSAL
1. Right of First Refusal
----------------------
(a) The Company shall not issue, sell or exchange, agree to issue,
sell or exchange, or reserve or set aside for issuance, sale or exchange, (i)
any shares of its Common Stock, (ii) any other equity securities of the Company,
including, without limitation, shares of preferred stock, (iii) any option,
warrant or other right to subscribe for, purchase or otherwise acquire any
equity securities of the Company, or (iv) any debt securities convertible into
capital stock of the Company (collectively, the "Offered Securities"), unless in
each such case the Company shall have first complied with Article IV of this
Agreement. The Company shall deliver to each Investor a written notice of any
proposed or intended issuance, sale or exchange of Offered Securities (the
"Offer"), which Offer shall (i) identify and describe the Offered Securities,
(ii) describe the price and other terms upon which they are to be issued, sold
or exchanged, and the number or amount of the Offered Securities to be issued,
sold or exchanged, (iii) identify the persons or entities, if known, to which or
with which the Offered Securities are to be offered, issued, sold or exchanged,
and (iv) offer to issue and sell to or exchange with such Investor such portion
of the Offered Securities as is equal to the number of Offered Securities
multiplied by a fraction, the numerator of which is the aggregate number of
shares of Common Stock issued or
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<PAGE>
issuable upon conversion of the Shares held by such Investor and the denominator
of which is the total number of shares of Common Stock then outstanding (giving
effect to the assumed conversion of all outstanding shares of convertible
preferred stock) (the "Pro Rata Share"). Each Investor shall have the right, for
a period of 20 days following delivery of the Offer, to purchase or acquire, at
the price and upon the other terms specified in the Offer, the number or amount
of Offered Securities described above. The Offer by its term shall remain open
and irrevocable for such 20-day period.
(b) To accept an Offer, in whole or in part, an Investor must deliver
a written notice to the Company prior to the end of the 20-day period of the
Offer, setting forth the portion of such Investor's Pro Rata Share that such
Investor elects to purchase (a "Notice of Acceptance").
(c) The Company shall have 90 days from the expiration of the 20-day
period set forth in Section 1(a) to issue, sell or exchange all or any part of
such Offered Securities as to which a Notice of Acceptance has not been given by
the Investors (the "Available Securities"), but only to the offerees or
purchasers described in the Offer and only upon terms and conditions which are
not more favorable, in the aggregate, to the acquiring person or persons or less
favorable to the Company than those set forth in the Offer.
(d) In the event the Company shall propose to sell less than all the
Available Securities (any such sale to be in the manner and on the terms
specified in Section 1(c)), then each Investor may, at its sole option and in
its sole discretion, reduce the number or amount of the Offered Securities
specified in its Notice of Acceptance to an amount that shall be not less than
the number or amount of the Offered Securities that the Investor elected to
purchase pursuant to Section 1(b) multiplied by a fraction, (i) the numerator of
which shall be the number or amount of Offered Securities the Company actually
proposes to issue, sell or exchange (including Offered Securities to be issued
or sold to Investors pursuant to Article IV, Section 1(b) prior to such
reduction) and (ii) the denominator of which shall be the amount of all Offered
Securities. In the event that an Investor so elects to reduce the number or
amount of Offered Securities specified in its Notice of Acceptance, the Company
may not issue, sell or exchange more than the reduced number or amount of the
Offered Securities unless and until such securities have again been offered to
the Investors in accordance with Section 1(a).
(e) Upon the closing of the issuance, sale or exchange of all or less
than all the Available Securities, the Investors shall acquire from the Company,
and the Company shall issue to the Investors, the number or amount of Offered
Securities specified in the Notices of Acceptance, as reduced pursuant to
Section 1(d) if the Investors have so elected, upon the terms and conditions
specified in the Offer. The purchase by the Investors of any Offered Securities
is subject in all cases to the
-12-
<PAGE>
preparation, execution and delivery by the Company and the Investors of a
purchase agreement relating to such Offered Securities reasonably satisfactory
in form and substance to the Investors and the Company.
(f) Any Offered Securities not acquired by the Investors or other
persons in accordance with Section 1(c) may not be issued, sold or exchanged
until they are again offered to the Investors under the procedures specified in
this Article.
2. Excluded Issuances. The rights of the Investors under this Article IV
------------------
shall not apply to:
(a) Common Stock issued as a stock dividend to holders of Common Stock
or upon any subdivision or combination of shares of Common Stock;
(b) the issuance of any shares of Common Stock upon conversion of
outstanding shares of convertible preferred stock;
(c) shares of Series C Preferred Stock issued at Additional Closings,
as defined in the Purchase Agreement;
(d) up to 5,995,604 shares of Common Stock, either issued in the form
of restricted stock awards or options exercisable for Common Stock (subject to
appropriate adjustment for stock split, stock dividends, combinations and other
similar recapitalizations affecting such shares), plus such additional number of
shares as may be approved by a majority of the non-employee directors of the
Company, issued or issuable to officers, directors, consultants and employees of
the Company or any subsidiary pursuant to any plan, agreement or arrangement
approved by the Board of Directors of the Company;
(e) securities issued solely in consideration for the acquisition
(whether by merger or otherwise) by the Company or any of its subsidiaries of
all or substantially all of the stock or assets of any other entity;
(f) shares of Common Stock sold by the Company in an underwritten
public offering pursuant to an effective registration statement under the
Securities Act; and
(g) securities issued to equipment lessors, as approved by a majority
of non-employee directors of the Company.
-13-
<PAGE>
ARTICLE V. GENERAL
1. Termination. Article II and Article IV of this Agreement shall
-----------
terminate in their entirety upon the earlier of (a) an Acquisition (as defined
below), or (b) the closing of an Initial Public Offering, or (c) the redemption
of all Shares. An "Acquisition" shall mean any (i) merger or consolidation
which results in the voting securities of the Company outstanding immediately
prior thereto representing immediately thereafter (either by remaining
outstanding or by being converted into voting securities of the surviving or
acquiring entity) less than a majority of the combined voting power of the
voting securities of the Company or such surviving or acquiring entity
outstanding immediately after such merger or consolidation, (ii) sale of all or
substantially all the assets of the Company or (iii) sale of shares of capital
stock of the Company, in a single transaction or series of related transactions,
representing at least 80% of the voting power of the voting securities of the
Company.
2. Transfer of Rights. This Agreement, and the rights and obligations
------------------
of an Investor hereunder, may be assigned by such Investor to any person or
entity to which at least 100,000 Shares, as adjusted for stock splits, stock
dividends, recapitalizations and similar events (or 100% of the Shares
originally purchased hereunder by such Investor, if less than 100,000 Shares),
are transferred by such Investor, and such transferee shall be deemed an
"Investor" for purposes of this Agreement; provided that the transferee provides
--------
written notice of such assignment to the Company and agrees to be bound by the
terms and conditions set forth herein. The rights and obligations of a Founder
under Article II hereunder may be assigned by said Founder to any spouse, child,
grandchild or trust for his or her benefit and such transferee shall be deemed a
"Founder" for purposes of Article II, provided that the transferee provides
--------
written notice of such assignment to the Company and agrees to be bound by the
terms and conditions set forth herein.
3. Severability. The provisions of this Agreement are severable, so
------------
that the invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other term or provision of this
Agreement, which shall remain in full force and effect.
4. Specific Performance. In addition to any and all other remedies that
--------------------
may be available at law in the event of any breach of this Agreement, the
Investors and the Founders shall be entitled to specific performance of the
agreements and obligations of the other parties hereunder and to such other
injunctive or other equitable relief as may be granted by a court of competent
jurisdiction.
5. Governing Law. This Agreement shall be governed by, and construed
-------------
and enforced in accordance with, the laws of the State of Delaware (without
reference to the conflicts of law provisions thereof).
-14-
<PAGE>
6. Notices. All notices, requests, consents, and other communications
-------
under this Agreement shall be in writing and shall be delivered by hand, sent
via a reputable nationwide overnight courier service or mailed by first class
certified or registered mail, return receipt requested, postage prepaid:
If to the Company, at Sycamore Networks, Inc., 10 Elizabeth Drive,
Chelmsford, MA 01824, Attn: President, or at such other address or addresses as
may have been furnished in writing by the Company to the Purchasers, with a copy
to Hale and Dorr LLP, 60 State Street, Boston, MA 02109, Attn: Mark G. Borden,
Esq.;
If to an Investor, at its or his address as set forth on the signature page
hereto, or at such other address or addresses as may have been furnished in
writing by such Investor to the Company.
If to a Founder, at his address as set forth on the signature page hereto,
or at such other address or addresses as may have been furnished by such Founder
to the Company and the Investors.
Notices provided in accordance with this Section 6 shall be deemed
delivered upon personal delivery, one business day after being sent via a
reputable nationwide overnight courier service, or three business days after
deposit in the mail.
7. Complete Agreement; Amendments.
------------------------------
(a) This Agreement constitutes the full and complete agreement of the
parties hereto with respect to the subject matter hereof.
(b) This Agreement may be amended at any time by a written instrument
signed by the Company and Investors holding at least a majority of the shares of
Common Stock issued or issuable upon conversion of the Shares, provided that no
--------
consent shall be required for an amendment pursuant to Section 11 below and
provided further that Section 8 of Article III shall not be amended to include
- -------- -------
any securities of the Company other than the Registrable Shares without the
consent of each Investor who would be adversely affected by such amendment. No
waivers of or exceptions to any term, condition or provision of this Agreement,
in any one or more instances, shall be deemed to be, or construed as, a further
or continuing waiver of any such term, condition or provision.
(c) The Prior Agreement is hereby amended and restated and superseded
in all respects by this Agreement. Each of the Investors waives any right it
may have had under Article IV of the Prior Agreement with respect to the
issuance and sale by Company of the shares of Series C Convertible Preferred
Stock pursuant to the Purchase Agreement.
-15-
<PAGE>
8. Pronouns. Whenever the content may require, any pronouns used in this
--------
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns and pronouns shall include the plural, and vice
versa.
9. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, and all of which
together shall constitute one Agreement binding on all the parties hereto.
10. Captions. Captions of sections have been added only for convenience
--------
and shall not be deemed to be a part of this Agreement.
11. Addition of Purchasers. Each purchaser of shares of Series C
----------------------
Preferred Stock of the Company under Section 2.2 of the Purchase Agreement shall
become a party to and an Investor under this Agreement upon the closing of its
purchase of shares of Series C Preferred Stock thereunder and its execution of a
counterpart signature page to this Agreement.
-16-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date first
written above.
COMPANY:
SYCAMORE NETWORKS, INC.
By: /s/ Daniel Smith
-------------------------------------
Daniel Smith
President
INVESTORS:
Matrix Partners V, L.P.
Bay Colony Corporate Center
1000 Winter Street, Suite 4500
Waltham, MA 02154
By: Matrix V Management Co., L.L.C., its
General Partner
By: /s/ Timothy A. Barrows
-------------------------------
Matrix V Entrepreneurs Fund, L.P.
Bay Colony Corporate Center
1000 Winter Street, Suite 4500
Waltham, MA 02154
By: Matrix V Management Co., L.L.C., its
General Partner
By: /s/ Timothy A. Barrows
-------------------------------
-17-
<PAGE>
North Bridge Venture Partners II, L.P.
404 Wyman Street, Suite 365
Waltham, MA 02154
By: North Bridge Venture Partners II, L.P.
its General Partner
By: /s/ Edward T. Anderson
-------------------------------
Integral Capital Partners IV, L.P.
2750 Sand Hill Road
Menlo Park, CA 94025-7020
By: Integral Capital Management IV, LLC
its General Partner
By: /s/ Pamela K. Hagenah
------------------------------------
Pamela K. Hagenah
a Manager
Integral Capital Partners IV MS Side
Fund, L.P.
2750 Sand Hill Road
Menlo Park, CA 94025-7020
By: ICP MS Management, LLC
its General Partner
By: /s/ Pamela K. Hagenah
------------------------------------
Pamela K. Hagenah
a Manager
Pequot Private Equity Fund, L.P.
500 Nyala Farm Road
Westport, CT 06880
-18-
<PAGE>
By: /s/ David J. Malat
------------------------------------
Pequot Offshore Private Equity Fund, Inc.
500 Nyala Farm Road
Westport, CT 06880
By: /s/ David J. Malat
------------------------------------
Pequot Venture Partners, L.P.
500 Nyala Farm Road
Westport, CT 06880
By: /s/ David J. Malat
------------------------------------
Spinnaker Founders Fund, L.P.
1875 South Grant Street
San Mateo, CA 94402
By: Bowman Capital Management, L.L.C.
its General Partner
By: /s/ William J. Haggerty
-----------------------------------
William J. Haggerty,
Managing Director of
Operations of Bowman
Capital Management, L.L.C.
Spinnaker Offshore Founders Fund,
1875 South Grant Street
San Mateo, CA 94402
-19-
<PAGE>
By: Bowman Capital Management, L.L.C.,
its Investment Adviser and
Attorney-in-Fact
By: /s/ William J. Haggerty
-----------------------------------
William J. Haggerty,
Managing Director of
Operations of Bowman
Capital Management,
L.L.C.
Spinnaker Clipper Fund, L.P.
1875 South Grant Street
San Mateo, CA 94402
By: Bowman Capital Management,
L.L.C., its General Partner
By: /s/ William J. Haggerty
-----------------------------------
William J. Haggerty,
Managing Director of
Operations of Bowman
Capital Management,
L.L.C.
ATGF II, a Panamanian corporation
SUCRE Building Calle 48 Este
Bella Vista, P.O. Box 5168
Panama S, Panama
By: /s/ illegible
------------------------------------
Director
/s/ Ralph H. Cechettini
----------------------------------------
The Ralph H. Cechettini 1995 Trust
-20-
<PAGE>
/s/ James Stableford
------------------------------------------
James Stableford
/s/ Anthony Ciulla
------------------------------------------
Anthony Ciulla
/s/ William Slattery
------------------------------------------
William Slattery
/s/ Marc Weiss
------------------------------------------
Marc Weiss
/s/ Gururaj Deshpande
------------------------------------------
Gururaj Deshpande
/s/ Daniel Smith
------------------------------------------
Daniel Smith
/s/ Chikong Shue
------------------------------------------
Chikong Shue
/s/ Siu Wing Li
------------------------------------------
Siu Wing Li
FOUNDERS:
/s/ Gururaj Deshpande
------------------------------------------
Gururaj Deshpande
Address: 9 Sparta Way
Andover, MA 01810
-21-
<PAGE>
/s/ Richard Barry
------------------------------------------
Richard Barry
Address: 1284 Beacon Street, #815
Brookline, MA 02138
-22-
<PAGE>
Schedule I
----------
Investors
---------
Matrix Partners V, L.P.
Matrix V Entrepreneurs Fund, L.P.
North Bridge Venture Partners II, L.P.
Integral Capital Partners IV, L.P.
Integral Capital Partners IV MS Side Fund, L.P.
Pequot Private Equity Fund, L.P.
Pequot Venture Partners, L.P.
Pequot Offshore Private Equity Fund, Inc.
ATGF II, a Panamanian corporation
The Ralph H. Cechettini 1995 Trust
James Stableford
Anthony Ciulla
William Slattery
Marc Weiss
Spinnaker Founders Fund, L.P.
Spinnaker Offshore Founders Fund, Cayman Limited
Spinnaker Clipper Fund, L.P.
Gururaj Deshpande
Daniel Smith
Chikong Shue
Siu Wing Li
Michael Viren
Steven Finn
Eric MacDonald
John Dowling
Leif Uptegrove
Scott Baker
Jeannette Slaff
-23-
<PAGE>
Schedule II
-----------
Founders
--------
Gururaj Deshpande
Richard Barry
-24-
<PAGE>
AMENDMENT NO. 1
TO
SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
-----------------------------------------------------
This Amendment dated as of July 23, 1999 is entered into by and among
Sycamore Networks, Inc., a Delaware corporation (the "Company"), Siemens
Information and Communication Networks, Inc., a Delaware corporation
("Siemens"), the Investors (as defined below) and the Founders (as defined
below).
WHEREAS, the Company has entered into a Second Amended and Restated
Investor Rights Agreement dated as of February 26, 1999 (the "Agreement") with
the persons and entities listed on Schedule I thereto under the heading
"Investors" (individually, an "Investor" and collectively, the "Investors") and
the persons listed on Schedule II thereto under the heading "Founders"
(individually, a "Founder" and collectively, the "Founders");
WHEREAS, the Company and Siemens have entered into a Series D Preferred
Stock Purchase Agreement of even date herewith (the "Series D Stock Purchase
Agreement"); and
WHEREAS, the parties hereto desire to amend the Agreement pursuant to this
Amendment No. 1.
NOW THEREFORE, in consideration of the mutual covenants contained herein
and for other valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. The definition of "Initial Public Offering" contained in Article I of
the Agreement shall be deleted in its entirety and the following substituted in
its place:
"Initial Public Offering" means the sale of shares of Common Stock in
-----------------------
a firm commitment underwritten public offering pursuant to a
Registration Statement at a price to the public of at least $29.00 per
share (adjusted for stock splits, stock dividends and similar events)
resulting in proceeds (net of the underwriting discounts or commissions
and offering expenses) to the Company of at least $10,000,000.
2. The definition of "Shares" contained in Article I of the Agreement
shall be deleted in its entirety and the following substituted in its place:
"Shares" means the shares of Series A Convertible Preferred Stock,
------
Series B Convertible Preferred Stock, Series C Convertible
<PAGE>
Preferred Stock and Series D Convertible Preferred Stock held by the
Stockholders.
3. Section 2 to Article IV of the Agreement shall be deleted in its
entirety and the following substituted in its place:
2. Excluded Issuances. The rights of the Investors under this
------------------
Article IV shall not apply to:
(a) Common Stock issued as a stock dividend to holders of Common Stock
or upon any subdivision or combination of shares of Common Stock;
(b) the issuance of any shares of Common Stock upon conversion of
outstanding shares of convertible preferred stock;
(c) shares of Series C Preferred Stock issued at Additional Closings,
as defined in the Purchase Agreement;
(d) shares of Series D Preferred Stock issued pursuant to the Series D
Stock Purchase Agreement;
(e) up to 9,000,000 shares of Common Stock, either issued in the form
of restricted stock awards or options exercisable for Common Stock
(subject to appropriate adjustment for stock split, stock dividends,
combinations and other similar recapitalizations affecting such
shares), plus such additional number of shares as may be approved by a
majority of the non-employee directors of the Company, issued or
issuable to officers, directors, consultants and employees of the
Company or any subsidiary pursuant to any plan, agreement or
arrangement approved by the Board of Directors of the Company;
(f) securities issued solely in consideration for the acquisition
(whether by merger or otherwise) by the Company or any of its
subsidiaries of all or substantially all of the stock or assets of any
other entity;
(g) shares of Common Stock sold by the Company in an underwritten
public offering pursuant to an effective registration statement under
the Securities Act; and
(h) securities issued to equipment lessors, as approved by a majority
of non-employee directors of the Company.
-2-
<PAGE>
4. Schedule I attached to the Agreement shall be deleted in its entirety
----------
and Schedule I attached hereto shall be substituted in its place.
----------
5. The Agreement, as supplemented and modified by this Amendment, together
with the other writings referred to in the Agreement or delivered pursuant
thereto which form a part thereof, contain the entire agreement among the
parties with respect to the subject matter thereof and amend, restate and
supersede all prior and contemporaneous arrangements or understandings with
respect thereto. Siemens shall become a party to and an Investor under the
Agreement, as amended, upon its execution of this Amendment.
6. Upon the effectiveness of this Amendment, on and after the date hereof,
each reference in the Agreement to "this Agreement," "hereunder," "hereof,"
"herein" or words of like import, and each reference in the other documents
entered into in connection with the Agreement, shall mean and be a reference to
the Agreement, as amended hereby. Except as specifically amended above, the
Agreement shall remain in full force and effect and is hereby ratified and
confirmed.
7. This Amendment shall be governed by the laws of the State of Delaware,
notwithstanding the conflict-of-law doctrines of Delaware or any other
jurisdiction to the contrary.
8. This Amendment may be executed in any number of counterparts, and each
such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
9. This Amendment shall be binding on all parties to the Agreement as and
when executed by the Company and Investors holding at least a majority of the
shares of Common Stock issued or issuable upon conversion of the Shares (as
defined in the Agreement).
-3-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Amendment on the
date first above written.
COMPANY:
SYCAMORE NETWORKS, INC.
By: /s/ Daniel Smith
-------------------------------------
Daniel Smith
President
SIEMENS
SIEMENS INFORMATION AND COMMUNICATION
NETWORKS, INC.
By: /s/ Illegible
-------------------------------------
Address: 900 Broken Sound Parkway
Boca Raton, FL 33487
For Notices: P.O. Box 58075
Santa Clara, CA 95052-8075
Attn: Bjoern Christensen
Fax: (408) 492-4821
With copies to Siemens Corporation
1301 Avenue of the Americas
New York, NY 10019
Attn: General Counsel
Fax: (212) 258-4490
-4-
<PAGE>
Matrix Partners V, L.P.
Bay Colony Corporate Center
1000 Winter Street, Suite 4500
Waltham, MA 02154
By: Matrix V Management Co., L.L.C.,
its General Partner
By: /s/ Timothy A. Barrows
-------------------------------------
Matrix V Entrepreneurs Fund, L.P.
Bay Colony Corporate Center
1000 Winter Street, Suite 4500
Waltham, MA 02154
By: Matrix V Management Co., L.L.C.
its General Partner
By: /s/ Timothy A. Barrows
-------------------------------------
-5-
<PAGE>
North Bridge Venture Partners II, L.P.
404 Wyman Street, Suite 365
Waltham, MA 02154
By: North Bridge Venture Partners II, L.P.
its General Partner
By: /s/ Edward T. Anderson
-------------------------------------
Integral Capital Partners IV, L.P.
2750 Sand Hill Road
Menlo Park, CA 94025-7020
By: Integral Capital Management IV, LLC
its General Partner
By: /s/ Pamela K. Hagenah
-------------------------------------
Pamela K. Hagenah
a Manager
Integral Capital Partners IV MS Side
Fund, L.P.
2750 Sand Hill Road
Menlo Park, CA 94025-7020
By: ICP MS Management, LLC
its General Partner
By: /s/ Pamela K. Hagenah
-------------------------------------
Pamela K. Hagenah
a Manager
Pequot Private Equity Fund, L.P.
500 Nyala Farm Road
Westport, CT 06880
By: /s/ David J. Malat
-------------------------------------
-6-
<PAGE>
Pequot Offshore Private Equity Fund, Inc.
500 Nyala Farm Road
Westport, CT 06880
By: /s/ David J. Malat
------------------------------------
Pequot Venture Partners, L.P.
500 Nyala Farm Road
Westport, CT 06880
By: /s/ David J. Malat
------------------------------------
Spinnaker Founders Fund, L.P.
1875 South Grant Street
San Mateo, CA 94402
By: Bowman Capital Management, L.L.C.,
its General Partner
By:
------------------------------------
William J. Haggerty, Managing
Director of Operations of Bowman
Capital Management, L.L.C.
Spinnaker Offshore Founders Fund,
Cayman Limited
1875 South Grant Street
San Mateo, CA 94402
By: Bowman Capital Management, L.L.C.,
its Investment Adviser and
Attorney-in-Fact
By:
------------------------------------
William J. Haggerty, Managing
Director of Operations of Bowman
Capital Management, L.L.C.
-7-
<PAGE>
Spinnaker Clipper Fund, L.P.
1875 South Grant Street
San Mateo, CA 94402
By: Bowman Capital Management, L.L.C.,
its General Partner
By:
------------------------------------
William J. Haggerty, Managing
Director of Operations of Bowman
Capital Management, L.L.C.
ATGF II, a Panamanian corporation
SUCRE Building Calle 48 Este
Bella Vista, P.O. Box 5168
Panama S, Panama
By: /s/ Gary A. Tanaka
-------------------------------------
Director
/s/ Ralph H. Cechettini
---------------------------------------
The Ralph H. Cechettini 1995 Trust
/s/ James Stableford
----------------------------------------
James Stableford
/s/ Anthony Ciulla
---------------------------------------
Anthony Ciulla
---------------------------------------
William Slattery
---------------------------------------
Marc Weiss
-8-
<PAGE>
---------------------------------------
Chikong Shue
---------------------------------------
Siu Wing Li
/s/ Gururaj Deshpande
---------------------------------------
Gururaj Deshpande
/s/ Daniel Smith
---------------------------------------
Daniel Smith
FOUNDERS:
/s/ Gururaj Deshpande
----------------------------------------
Gururaj Deshpande
Address: 9 Sparta Way
Andover, MA 01810
---------------------------------------
Richard Barry
Address: 1284 Beacon Street, #815
Brookline, MA 02138
-9-
<PAGE>
Schedule I
----------
Investors
---------
Matrix Partners V, L.P.
Matrix V Entrepreneurs Fund, L.P.
North Bridge Venture Partners II, L.P.
Integral Capital Partners IV, L.P.
Integral Capital Partners IV MS Side Fund, L.P.
Pequot Private Equity Fund, L.P.
Pequot Venture Partners, L.P.
Pequot Offshore Private Equity Fund, Inc.
ATGF II, a Panamanian corporation
The Ralph H. Cechettini 1995 Trust
James Stableford
Anthony Ciulla
William Slattery
Marc Weiss
Spinnaker Founders Fund, L.P.
Spinnaker Offshore Founders Fund, Cayman Limited
Spinnaker Clipper Fund, L.P.
Gururaj Deshpande
Daniel Smith
Chikong Shue
Siu Wing Li
Michael Viren
Steven Finn
Eric MacDonald
John Dowling
Leif Uptegrove
Scott Baker
Jeannette Slaff
Siemens Information and Communication Networks, Inc.
-10-
<PAGE>
Exhibit 10.1
SYCAMORE NETWORKS, INC.
1998 STOCK INCENTIVE PLAN
-------------------------
1. Purpose
-------
The purpose of this 1998 Stock Incentive Plan (the "Plan") of Sycamore
Networks, Inc., a Delaware corporation (the "Company"), is to advance the
interests of the Company's stockholders by enhancing the Company's ability to
attract, retain and motivate persons who make (or are expected to make)
important contributions to the Company by providing such persons with equity
ownership opportunities and performance-based incentives and thereby better
aligning the interests of such persons with those of the Company's stockholders.
Except where the context otherwise requires, the term "Company" shall include
any of the Company's present or future subsidiary corporations of as defined in
Section 424(f) of the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder (the "Code").
2. Eligibility
-----------
All of the Company's employees, officers, directors, consultants and
advisors (and any individuals who have accepted an offer for employment) are
eligible to be granted options, restricted stock awards, or other stock-based
awards (each, an "Award") under the Plan. Each person who has been granted an
Award under the Plan shall be deemed a "Participant".
3. Administration, Delegation
--------------------------
(a) Administration by Board of Directors. The Plan will be administered by
------------------------------------
the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Award. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.
(b) Delegation to Executive Officers. To the extent permitted by
--------------------------------
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards and exercise such other powers under the Plan
as the Board may determine, provided that the Board shall fix the maximum number
of shares
<PAGE>
subject to Awards and the maximum number of shares for any one Participant to be
made by such executive officers.
(c) Appointment of Committees. To the extent permitted by applicable law,
-------------------------
the Board may delegate any or all of its powers under the Plan to one or more
committees or subcommittees of the Board (a "Committee"). All references in the
Plan to the "Board" shall mean the Board or a Committee of the Board or the
executive officer referred to in Section 3(b) to the extent that the Board's
powers or authority under the Plan have been delegated to such Committee or
executive officer.
4. Stock Available for Awards
--------------------------
(a) Number of Shares. Subject to adjustment under Section 8, Awards may be
----------------
made under the Plan for up to 509,396 shares of common stock, $.001 par value
per share, of the Company (the "Common Stock"). If any Award expires or is
terminated, surrendered or canceled without having been fully exercised or is
forfeited in whole or in part or results in any Common Stock not being issued,
the unused Common Stock covered by such Award shall again be available for the
grant of Awards under the Plan, subject, however, in the case of Incentive Stock
Options (as hereinafter defined), to any limitation required under the Code.
Shares issued under the Plan may consist in whole or in part of authorized but
unissued shares or treasury shares.
(b) Per-Participant Limit. Subject to adjustment under Section 8, for
---------------------
Awards granted after the Common Stock is registered under the Securities
Exchange Act of 1934 (the "Exchange Act"), the maximum number of shares of
Common Stock with respect to which an Award may be granted to any Participant
under the Plan shall be 500,000 per calendar year. The per-Participant limit
described in this Section 4(b) shall be construed and applied consistently with
Section 162(m) of the Code.
5. Stock Options
-------------
(a) General. The Board may grant options to purchase Common Stock (each,
-------
an "Option") and determine the number of shares of Common Stock to be covered by
each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive
Stock Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
(b) Incentive Stock Options. An Option that the Board intends to be an
-----------------------
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code.
-2-
<PAGE>
The Company shall have no liability to a Participant, or any other party, if an
Option (or any part thereof) which is intended to be an Incentive Stock Option
is not an Incentive Stock Option.
(c) Exercise Price. The Board shall establish the exercise price at the
--------------
time each Option is granted and specify it in the applicable option agreement.
(d) Duration of Options. Each Option shall be exercisable at such times
-------------------
and subject to such terms and conditions as the Board may specify in the
applicable option agreement.
(e) Exercise of Option. Options may be exercised by delivery to the
------------------
Company of a written notice of exercise signed by the proper person or by any
other form of notice (including electronic notice) approved by the Board
together with payment in full as specified in Section 5(f) for the number of
shares for which the Option is exercised.
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of an
----------------------
Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may, in its sole discretion, otherwise
provide in an option agreement, by (i) delivery of an irrevocable and
unconditional undertaking by a creditworthy broker to deliver promptly to the
Company sufficient funds to pay the exercise price or (ii) delivery by the
Participant to the Company of a copy of irrevocable and unconditional
instructions to a creditworthy broker to deliver promptly to the Company cash or
a check sufficient to pay the exercise price;
(3) when the Common Stock is registered under the Exchange Act, by
delivery of shares of Common Stock owned by the Participant valued at their fair
market value as determined by (or in a manner approved by) the Board in good
faith ("Fair Market Value"), which Common Stock was owned by the Participant at
least six months prior to such delivery;
(4) to the extent permitted by the Board, in its sole discretion by
(i) delivery of a promissory note of the Participant to the Company on terms
determined by the Board, or (ii) payment of such other lawful consideration as
the Board may determine; or
(5) by any combination of the above permitted forms of payment.
-3-
<PAGE>
6. Restricted Stock
----------------
(a) Grants. The Board may grant Awards entitling recipients to acquire
------
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, a "Restricted Stock Award").
(b) Terms and Conditions. The Board shall determine the terms and
--------------------
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
7. Other Stock-Based Awards
------------------------
The Board shall have the right to grant other Awards based upon the Common
Stock having such terms and conditions as the Board may determine, including the
grant of shares based upon certain conditions, the grant of securities
convertible into Common Stock and the grant of stock appreciation rights.
8. Adjustments for Changes in Common Stock and Certain Other Events
----------------------------------------------------------------
(a) Changes in Capitalization. In the event of any stock split, reverse
-------------------------
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Stock other than a normal
cash dividend, (i) the number and class of securities available under this Plan,
(ii) the per-Participant limit set forth in Section 4(b), (iii) the number and
class of securities and exercise price per share subject to each outstanding
Option, (iv) the repurchase price per share subject to each outstanding
Restricted Stock Award, and (v) the terms of each other outstanding Award shall
be appropriately adjusted by the Company (or substituted Awards may be made, if
applicable) to the extent the Board shall determine, in good faith, that such an
adjustment (or substitution) is necessary and appropriate. If this Section 8(a)
-4-
<PAGE>
applies and Section 8(c) also applies to any event, Section 8(c) shall be
applicable to such event, and this Section 8(a) shall not be applicable.
(b) Liquidation or Dissolution. In the event of a proposed liquidation or
--------------------------
dissolution of the Company, the Board shall upon written notice to the
Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least 10 business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date. The Board may specify the effect of a liquidation
or dissolution on any Restricted Stock Award or other Award granted under the
Plan at the time of the grant of such Award.
(c) Acquisition Events
------------------
(1) Definition. An "Acquisition Event" shall mean: (a) any merger or
----------
consolidation of the Company with or into another entity as a result of which
the Common Stock is converted into or exchanged for the right to receive cash,
securities or other property or (b) any exchange of shares of the Company for
cash, securities or other property pursuant to a statutory share exchange
transaction.
(2) Consequences of an Acquisition Event on Options. Upon the
------------------------------------------------
occurrence of an Acquisition Event, or the execution by the Company of any
agreement with respect to an Acquisition Event, the Board shall provide that all
outstanding Options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof). For purposes hereof, an Option shall be considered to be assumed if,
following consummation of the Acquisition Event, the Option confers the right to
purchase, for each share of Common Stock subject to the Option immediately prior
to the consummation of the Acquisition Event, the consideration (whether cash,
securities or other property) received as a result of the Acquisition Event by
holders of Common Stock for each share of Common Stock held immediately prior to
the consummation of the Acquisition Event (and if holders were offered a choice
of consideration, the type of consideration chosen by the holders of a majority
of the outstanding shares of Common Stock); provided, however, that if the
consideration received as a result of the Acquisition Event is not solely common
stock of the acquiring or succeeding corporation (or an affiliate thereof), the
Company may, with the consent of the acquiring or succeeding corporation,
provide for the consideration to be received upon the exercise of Options to
consist solely of common stock of the acquiring or succeeding corporation (or an
affiliate thereof) equivalent in fair market value to the per share
consideration received by holders of outstanding shares of Common Stock as a
result of the Acquisition Event.
Notwithstanding the foregoing, if the acquiring or succeeding
corporation (or an affiliate thereof) does not agree to assume, or substitute
for, such
-5-
<PAGE>
Options, then the Board shall, upon written notice to the Participants, provide
that all then unexercised Options will become exercisable in full as of a
specified time prior to the Acquisition Event and will terminate immediately
prior to the consummation of such Acquisition Event, except to the extent
exercised by the Participants before the consummation of such Acquisition Event;
provided, however, that in the event of an Acquisition Event under the terms of
which holders of Common Stock will receive upon consummation thereof a cash
payment for each share of Common Stock surrendered pursuant to such Acquisition
Event (the "Acquisition Price"), then the Board may instead provide that all
outstanding Options shall terminate upon consummation of such Acquisition Event
and that each Participant shall receive, in exchange therefor, a cash payment
equal to the amount (if any) by which (A) the Acquisition Price multiplied by
the number of shares of Common Stock subject to such outstanding Options
(whether or not then exercisable), exceeds (B) the aggregate exercise price of
such Options.
(3) Consequences of an Acquisition Event on Restricted Stock Awards.
---------------------------------------------------------------
Upon the occurrence of an Acquisition Event, the repurchase and other rights of
the Company under each outstanding Restricted Stock Award shall inure to the
benefit of the Company's successor and shall apply to the cash, securities or
other property which the Common Stock was converted into or exchanged for
pursuant to such Acquisition Event in the same manner and to the same extent as
they applied to the Common Stock subject to such Restricted Stock Award.
(4) Consequences of an Acquisition Event on Other Awards. The Board
----------------------------------------------------
shall specify the effect of an Acquisition Event on any other Award granted
under the Plan at the time of the grant of such Award.
9. General Provisions Applicable to Awards
---------------------------------------
(a) Transferability of Awards. Except as the Board may otherwise determine
-------------------------
or provide in an Award, Awards shall not be sold, assigned, transferred, pledged
or otherwise encumbered by the person to whom they are granted, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the life of the Participant, shall be exercisable only
by the Participant. References to a Participant, to the extent relevant in the
context, shall include references to authorized transferees.
(b) Documentation. Each Award shall be evidenced by a written instrument
-------------
in such form as the Board shall determine. Each Award may contain terms and
conditions in addition to those set forth in the Plan.
(c) Board Discretion. Except as otherwise provided by the Plan, each Award
----------------
may be made alone or in addition or in relation to any other Award. The
-6-
<PAGE>
terms of each Award need not be identical, and the Board need not treat
Participants uniformly.
(d) Termination of Status. The Board shall determine the effect on an
---------------------
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) Withholding. Each Participant shall pay to the Company, or make
-----------
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. Except as the Board may otherwise
provide in an Award, when the Common Stock is registered under the Exchange Act,
Participants may satisfy such tax obligations in whole or in part by delivery of
shares of Common Stock, including shares retained from the Award creating the
tax obligation, valued at their Fair Market Value. The Company may, to the
extent permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to a Participant.
(f) Amendment of Award. The Board may amend, modify or terminate any
------------------
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(g) Conditions on Delivery of Stock. The Company will not be obligated to
-------------------------------
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(h) Acceleration. The Board may at any time provide that any Options shall
------------
become immediately exercisable in full or in part, that any Restricted Stock
Awards shall be free of restrictions in full or in part or that any other Awards
may
-7-
<PAGE>
become exercisable in full or in part or free of some or all restrictions or
conditions, or otherwise realizable in full or in part, as the case may be.
10. Miscellaneous
-------------
(a) No Right To Employment or Other Status. No person shall have any claim
--------------------------------------
or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
------------------------
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the record date and
the distribution date for such stock dividend shall be entitled to receive, on
the distribution date, the stock dividend with respect to the shares of Common
Stock acquired upon such Option exercise, notwithstanding the fact that such
shares were not outstanding as of the close of business on the record date for
such stock dividend.
(c) Effective Date and Term of Plan. The Plan shall become effective on
-------------------------------
the date on which it is adopted by the Board. No Awards shall be granted under
the Plan after the completion of ten years from the earlier of (i) the date on
which the Plan was adopted by the Board or (ii) the date the Plan was approved
by the Company's stockholders, but Awards previously granted may extend beyond
that date.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan
-----------------
or any portion thereof at any time.
(e) Governing Law. The provisions of the Plan and all Awards made
-------------
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
Adopted by the Board of Directors on August 19, 1998
Approved by the Stockholders on October 19, 1998
-8-
<PAGE>
SYCAMORE NETWORKS, INC.
Amendment No. 1
to
1998 Stock Incentive Plan
Subsection 4(a) of the 1998 Stock Incentive Plan (the "Plan) of Sycamore
Networks, Inc. (the "Company), is hereby amended, subject to stockholder
approval, to increase from 509,396 to 2,009,396 the number of shares of the
Company's Common Stock, $0.001 par value per share, authorized for issuance
under the Plan.
Adopted by the Board of Directors
on October 19, 1998
Approved by the Stockholders
on October 19, 1998
<PAGE>
SYCAMORE NETWORKS, INC.
Amendment No. 2
to
1998 Stock Incentive Plan
Subsection 4(a) of the 1998 Stock Incentive Plan (the "Plan) of Sycamore
Networks, Inc. (the "Company), is hereby amended, subject to stockholder
approval, to increase from 2,009,396 to 2,855,000 the number of shares of the
Company's Common Stock, $0.001 par value per share, authorized for issuance
under the Plan.
Adopted by the Board of Directors
on February 25, 1999
Approved by the Stockholders
on May __, 1999
<PAGE>
EXHIBIT 10.3
PURCHASE AND LICENSE AGREEMENT
BETWEEN
SYCAMORE NETWORKS, INC.
AND
WILLIAMS COMMUNICATIONS, INC.
Exhibit(s):
Exhibit A: Additional Terms and Conditions
Exhibit B: Discount Schedule
Exhibit C: Insurance Terms
Exhibit D: Year 2000 Statement
Exhibit E: Escrow Agreement
Exhibit F: Maintenance
CONFIDENTIAL AND PROPRIETARY INFORMATION OF
-------------------------------------------
SYCAMORE NETWORKS, INC.
-----------------------
<PAGE>
PURCHASE AND LICENSE AGREEMENT
------------------------------
THIS AGREEMENT is made effective as of the date written below by and between
Sycamore Networks, Inc. ("Sycamore"), a Delaware corporation having a principal
place of business at 2 Highwood Drive, Suite 202 Tewksbury, MA 01876, and
Williams Communications, Inc. ("Williams") a Delaware corporation having a
principal place of business at One Williams Center, Tulsa, OK 74172.
Recitals of Fact
1. Sycamore sells and licenses various hardware and software products (the
"Products").
2. Williams desires to purchase and license Products from Sycamore during the
term of this Agreement for its internal use only.
NOW, THEREFORE, in consideration of their mutual promises and obligations
contained in this Agreement, the parties agree as follows:
1. Term
----
This Agreement shall become effective as of the date written below and
shall continue for a period of three (3) years, after which it shall renew
automatically for successive twelve (12) month additional terms, unless
otherwise terminated pursuant to the terms hereof.
2. Purchase
--------
2.1 During the term of this Agreement, and upon the terms and conditions set
forth herein, Sycamore shall sell to Williams Communications, Inc., its
parent Company and any parent's of its parent Company as well as any of the
parents majority owned subsidiaries (hereinafter Williams), and Williams
may from time to time purchase from Sycamore Products at pricing listed in
Sycamore's then-current price list applicable to each such Product, as
amended from time to time, less any applicable discounts. Any Williams'
parent or subsidiary, may order Products under this Agreement so long as
such an order references this Agreement and includes a statement whereby
the ordering entity agrees to be bound by the terms and conditions
contained herein. The parties hereby agree that additional terms and
conditions of the Williams purchase of Sycamore's Transponder Product shall
be those set forth in Exhibit A.
2.2 Shipments of the Products shall be made only against written purchase
orders issued by Williams. At a minimum, each purchase order shall specify
the following items:
a. A complete list of the Products covered by the purchase order,
specifying the quantity, model number and description of each;
b. The price of each Product as set forth on the attached price list and
subject to the terms of Section 6, below, and any applicable
discounts, and any additional charges and costs;
2
CONFIDENTIAL AND PROPRIETARY INFORMATION OF
-------------------------------------------
SYCAMORE NETWORKS, INC.
----------------------
<PAGE>
c. The billing address, the destination to which the Products will be
delivered, and the requested delivery date; and
d. The signature of Williams employee or agent who possesses the
authority to place such an order.
Sycamore shall not be obligated to accept any order in which Williams fails
to include the items in a through d, above. However if such order is
accepted, such failure shall not cause Williams not to receive the
applicable discount for such order.
2.3 Sycamore shall acknowledge Williams purchase orders in writing within five
(5) days after receipt. Sycamore's acknowledgment shall note any exceptions
regarding matters such as the items ordered, configuration, and Product
pricing. Sycamore shall also confirm the requested delivery date or offer
an alternative delivery date. In no event shall any order be binding on
Sycamore's until Williams order and Sycamore's acknowledgment are in
agreement as to the items ordered, configuration, pricing, delivery dates,
and all other material terms.
2.4 No purchase order, acknowledgment form, or other ordering document or
communication from either party shall vary the terms and conditions on this
Agreement unless both parties expressly agree in writing. In the event of
any conflict between the terms and conditions of this Agreement and those
of any purchase order acknowledgment form or other ordering document or
communication, the terms and conditions of this Agreement shall prevail.
3. Delivery
--------
3.1 All deliveries of the Products purchased pursuant to this Agreement will be
made FOB Sycamore's facility. All Products will be packaged for shipment in
accordance with standard industry practices. All transportation, shipping,
and insurance costs shall be shipped in accordance with Williams'
instructions and shall be charged to Williams' account. If Williams does
not notify Sycamore of a preferred freight forwarder, Sycamore shall select
a freight forwarder to be used for shipment of the Products to Williams.
Risk of loss shall pass to Williams at the point of delivery. However in
the event of any shipping damage, Sycamore shall be responsible for placing
and administering any claims with the freight forwarder or carrier
regarding any damages incurred during shipping. In addition, replacement
product for Product damaged in transit shall be provided by Sycamore on a
non-discriminatory first priority basis.
3.2 Title (excluding title to software Products ) shall pass to Williams at
the point of delivery to the common carrier at Sycamore's facility.
3.3 Sycamore shall use reasonable efforts to ship the Products on the shipment
date requested in Williams purchase order. Sycamore shall not be liable
for any loss, expense or damage incurred by Williams if Sycamore fails to
meet the specified delivery date. Sycamore reserves the right to allocate
shipment of Products among its purchasers and to make partial shipments.
Notwithstanding the foregoing, partial shipments shall only be made with
previous written
3
CONFIDENTIAL AND PROPRIETARY INFORMATION OF
-------------------------------------------
SYCAMORE NETWORKS, INC.
----------------------
<PAGE>
Confidential Material omitted and filed separately with the Securities and
Exchange Commission .
Asterisks denote omissions.
approval by Williams. If shipment is delayed more than [**] days from the
mutually agreed upon shipment date due to Sycamore's delay only, Williams
may cancel an order upon prior written notice to Sycamore. For the purposes
of computing Williams discount level only, shipments cancelled pursuant to
the previous sentence of this sub-paragraph 3.3, shall be deemed to have
shipped.
3.4 All shipments with destinations outside of the US shall be subject to
Sycamore's determination that such shipments are in compliance with all
applicable export and import regulations. For shipment other than in the
US, Williams will be solely responsible for (i) obtaining any license that
may be required to import the Products into its country (ii) clearing the
Products through local customs upon their arrival to Williams country and
(iii) paying all customs duties, taxes and other charges assessed on such
importation's in such country. In no event shall Sycamore delay in
shipping or refusal to ship due to export or import issues be deemed a
default hereunder.
4. Rescheduling and Cancellation of Orders
---------------------------------------
4.1 Upon written notice to Sycamore provided at least [**] days' prior to the
scheduled ship date, Williams may reschedule the delivery of any Products
scheduled for shipment by up to [**] days at no charge. Orders may,
however, be rescheduled only once, except that on an emergency basis,
Williams may reschedule more than once so long as any subsequent
rescheduled shipping date is not more than [**] days form the original
scheduled shipment date. Acceptance of Williams' request to reschedule any
delivery with less than [**] days' prior written notice to Sycamore shall
be at the sole discretion of Sycamore.
4.2 Upon at least [**] days' written notice to Sycamore prior to the
originally-scheduled shipment date of Products under this Agreement,
Williams may cancel any shipment of the Products without charge. The
following cancellation charges shall apply to any cancellations made by
Williams less than [**] days prior to shipment as liquidated damages and
not as a penalty based on the number of days prior to the scheduled
delivery that written notice of cancellation is received by Sycamore:
Days Notice Charge
----------- ------
(% of canceled order)
Greater than [**] days [**]%
[**] days [**]%
[**] days [**]%
4
CONFIDENTIAL AND PROPRIETARY INFORMATION OF
-------------------------------------------
SYCAMORE NETWORKS, INC.
----------------------
<PAGE>
Confidential Material omitted and filed separately with the Securities and
Exchange Commission .
Asterisks denote omissions.
5. Prices
------
5.1 During the term of this Agreement, Williams shall be entitled to purchase
the Products at the prices set forth in Sycamore then-current Price List,
an example of which is attached hereto, applicable to each particular
Product, less any applicable discounts based on annual purchase volume
listed in Exhibit B. All prices set forth in Sycamore Price List are
---------
exclusive of any applicable value added, excise, sales, use or consumption
taxes, customs duties or other governmental charges except for any taxes
imposed upon the income of Sycamore or upon its employment base.
5.2 (a) In the event of a Sycamore price increase, all Products ordered on or
after the effective date of such price increase shall be filled at the new
higher price. Sycamore will provide Williams with written notice of any
price increase [**] days prior to the effective date of such price
increase. Sycamore shall, however, honor all written and accepted Williams
purchase orders for the Products received by Sycamore prior to the price
increase effective date at the prices in effect as of the date the order
was received, but only if Williams requests Sycamore to ship the Products
within [**] days after the effective date of the price increase.
(b) In the event of an Sycamore price decrease, all products ordered on or
after the effective date of such price decrease shall be filled at the new
lower price.
6. Payment
-------
6.1 Sycamore shall invoice Williams upon shipment of the Products. Williams
shall pay all invoices in US dollars within [**] days of receipt. All such
invoices will be payable by check or wire transfer, to the following
accounts, in United States dollars:
For Wire Transfers:
-------------------------------------------------------
-------------------------------------------------------
In the event that Williams fails to make any payment when due, Sycamore may
withhold further shipments until such time as the past-due payment is made,
and may require that subsequent orders be paid in full prior to shipment
6.2 Sycamore reserves the right to impose a late payment charge of one and one-
half percent (1 1/2%) per month, or the maximum allowed by law, whichever
is less for each month that any payment is late, including the month in
which the payment was due and not paid.
5
CONFIDENTIAL AND PROPRIETARY INFORMATION OF
-------------------------------------------
SYCAMORE NETWORKS, INC.
----------------------
<PAGE>
Confidential Material omitted and filed separately with the Securities and
Exchange Commission .
Asterisks denote omissions.
6.3 Williams shall pay all municipal, state, county or federal taxes including,
but not limited to, sales, use, excise, value added or other taxes which
may be levied upon the sale, license or transfer, ownership or installation
of the Products except for any taxes imposed upon the income of Sycamore or
upon its employment base.
7. Changes / Availability of Products
----------------------------------
7.1 Sycamore shall promptly inform Williams as soon as is reasonably
practicable after Sycamore schedules discontinuance of production or
modification of any hardware Product. Sycamore, in its sole discretion,
may modify its price list at any time. Sycamore agrees to offer services
for any discontinued product for a period of [**] from the last date of
shipment of the discontinued product. Sycamore also agrees to offer a one-
time buy-out of spare parts for any discontinued product for a period of
[**] days following the announcement of any discontinuance.
7.2 At any time prior to delivery, Sycamore may make changes in the Products in
whole or in part to be supplied to the Williams hereunder to include
electrical or mechanical design refinements that Sycamore deems
appropriate, or as required by law or concerns of safety, without
obligation to modify or change any Product previously delivered or to
supply Products in accordance with earlier specifications.
8. License of Software Products and Firmware
-----------------------------------------
8.1 Subject to the provisions of this Section, Sycamore grants to Williams a
nonexclusive, nontransferable, (except for transfers in accordance with the
terms herein and in conjunction with the transfer of the Products with
which the software is first delivered), license to use the object code form
of the software Products solely for Williams internal business purposes
(including, without limitation, in conjunction with Williams' provision of
services to its customers) on or in conjunction with the Product with which
it was originally delivered.
8.2 Subject only to the licenses specifically granted herein, Sycamore is the
sole owner of all rights, title and interest, including all copyrights,
patents, trademarks, industrial designs, trade names, trade secrets and
other intellectual property rights in the software Products. The software
Products are copyrighted and Williams is only authorized to reproduce one
copy of the software Products solely for back-up purposes. Williams is
hereby prohibited from otherwise copying or translating, modifying or
adapting the software Products or, incorporating in whole or any part in
any other product or creating derivative works based on all or any part of
the Products. Williams is not authorized to license others to reproduce
any copies of the software Products, except as expressly provided in this
Agreement. Williams agrees to ensure that all copyright, trademark and
other proprietary notices of Sycamore affixed to or displayed on the
software Products will not be removed or modified. Williams shall not
decompile, disassemble or reverse engineer, the software Products or any
component thereof, except as may be permitted by applicable law in which
case Williams must notify Sycamore in writing and Sycamore may provide
review and assistance.
6
CONFIDENTIAL AND PROPRIETARY INFORMATION OF
-------------------------------------------
SYCAMORE NETWORKS, INC.
----------------------
<PAGE>
Confidential Material omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
8.3 The rights and licenses granted to Williams with respect to any software
Product furnished by Sycamore may not be sold, licensed, sublicensed,
rented, assigned or otherwise transferred to another party without the
prior written consent of Sycamore except Williams may assign to an entity
controlling, controlled by or under common control of Williams. Williams
shall provide written notice of such assignment within a reasonable time
thereafter.
8.4 Upon the effective date of a termination of this Agreement by Sycamore for
Williams breach, the license granted to Williams under this Agreement shall
terminate and Williams shall immediately discontinue use of the software
and all copies and documentation thereof and return all copies and
documentation to Sycamore. A termination of this Agreement by Williams for
Sycamore's breach shall not terminate Williams license hereunder.
8.5 US Government Restricted Rights. Notice - Distribution and use of products
including computer programs and any related documentation and derivative
works thereof, to and by the United States Government, are subject to the
Restricted Rights provisions of FAR 52.227-19, paragraph (c)(2) as
applicable, except for purchases by agencies of the Department of Defense
(DOD). If the Software is acquired under the terms of a Department of
Defense or civilian agency contract, the Software is "commercial item" as
that term is defined at 48 C.F.R. 2.101 (Oct. 1995), consisting of
"commercial computer software" and "commercial computer software
documentation" as such terms are used in 48 C.F.R. 12.212 of the Federal
Acquisition Regulations and its successors and 48 C.F.R. 227.7202-1 through
227.7202-4 (June 1995) of the DoD FAR Supplement and its successors. All
U.S. Government end users acquire the Software with only those rights set
forth in this Agreement. Manufacturer is Sycamore Networks, 2 Highwood
Drive, Suite 202, Tewksbury, MA 01876. Unpublished - rights reserved under
the copyright laws of the United States.
8.6 Williams may transfer the rights to use the software in conjunction with
the Products on which the software is first supplied, by means of an
enforceable sub-license having terms with regard to Williams' sub-
licensee's use which are no less restrictive than those as set forth in
this paragraph 8, except that any such sub-licensee may not subsequently
transfer such sub-license rights without Sycamore's written assent.
9. Support
-------
Williams may elect to purchase maintenance or support services from
Sycamore in connection with the Products pursuant to Sycamore's standard
terms and conditions and then-current programs. The provision of all such
maintenance and support services shall be governed by the applicable
agreement entered into between the parties. (See Exhibit F for Maintenance
options)
10. Limited Warranty
----------------
10.1 Product Warranty: Product hardware and media are warranted to be free from
defects in material and workmanship during the Warranty Period (as defined
below). Product hardware and software is warranted to conform substantially
to Sycamore's then current (as of the date of Sycamore's product shipment)
published user documentation during the Warranty Period. The Warranty
Period is [**] for Product hardware, Product software, and media. Product
support beyond these periods may be available at additional cost under a
Maintenance Service Agreement. The warranty shall commence upon delivery.
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10.2 Warranty Claims: Sycamore shall incur no liability under this warranty if
the end user fails to provide Sycamore with notice of the alleged defect
during the applicable Warranty Period. After receiving such notice,
Sycamore's Technical Assistance Center ("TAC") will notify the purchaser
of its designation of one of the following problem resolution methods:
Return to Factory: The allegedly defective goods must be returned to
Sycamore within ten days of receipt of the replacement product and in
accordance with Sycamore's Return to Factory repair procedures.
Other: TAC will use best efforts to deliver non-priority services to
repair, correct or workaround the problem by means of telephone
support, including patches, corrective software releases or other
means reasonably determined by Sycamore.
Sycamore shall incur no liability under this warranty if Sycamore's tests
disclose that the alleged defect is due to causes not within Sycamore's
reasonable control, including alteration or abuse of the goods. Under the
Return to Factory alternative, if a Product is determined not to be
defective or to have a defect due to causes not within Sycamore's
reasonable control, Sycamore's then current repair price as listed in the
price list will apply.
10.3 Sycamore warrants and represents that the software shall record, store,
process, and present calendar dates falling on or after January 1, 2000,
in the same manner, and with the same functionality, as such Products
record, store, process and present calendar dates falling on or before
December 31, 1999. Sycamore further warrants that in all other respects
such software shall not lose functionality or degrade in performance as a
consequence of such software operating in a date later than December 31,
1999. Sycamore shall also consult with Williams to (i) ensure that such
software will lose no functionality with respect to the introduction of
records containing dates falling on or after January 1, 2000, and (ii)
under terms and prices mutually agreed upon, to use commercially
reasonable efforts to ensure that such software will be interoperable with
other software used by Williams which will interact directly with the
Sycamore software in the course of processing data. Notwithstanding the
foregoing, Sycamore shall have no responsibility to the extent any loss of
functionality or degradation or failure to record, store, process or
present calendar dates falling on or after January 1, 2000 is caused by
the failure to so perform of any software of systems other than Sycamore's
used by Williams or any other supplier of Williams. Sycamore will perform
the above warranty obligations at no charge to Williams.
10.4. Sycamore warrants, except as stated in Sycamore's published
specifications, or as otherwise agreed, that any software provided to
Williams by Sycamore shall, to Sycamore's knowledge as of the date of this
Agreement: (a) contain no hidden files; (b) not replicate, transmit, or
activate itself without control of a person operating computing equipment
on which it resides; (c) not alter, damage, or erase any data or computer
programs without control of a person operating the computing equipment on
which it resides; (d) contain no encrypted imbedded key unknown to
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks donate omissions.
Williams, node lock, time-out or other function, whether implemented by
electronic, mechanical or other means, which restricts or may restrict use
of access to any programs or data developed under this Agreement, based on
residency on a specific hardware configuration, frequency of duration of
use, or other limiting criteria.
10.5 Sycamore's Liability: Sycamore's liability for breach of warranty
hereunder, and end user's sole and exclusive remedy, shall be limited to
the express remedies set forth in this Sycamore's Product Warranty.
10.6 Disclaimer of Warranties: SYCAMORE MAKES NO OTHER WARRANTIES, EXPRESS,
IMPLIED OR STATUTORY, REGARDING PRODUCTS. ALL OTHER WARRANTIES AS TO THE
QUALITY, CONDITION, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR
NONINFRINGEMENT ARE EXPRESSLY DISCLAIMED.
10.7 Limitation of Liability: NEITHER PARTY SHALL BE RESPONSIBLE FOR ANY
SPECIAL, CONSEQUENTIAL, INCIDENTAL, OR PUNITIVE DAMAGE, INCLUDING, BUT NOT
LIMITED TO, LOSS OF PROFITS OR DAMAGES TO BUSINESS OR BUSINESS RELATIONS,
WHETHER OR NOT ADVISED IN ADVANCE OF THE POSSIBILITY OF SUCH DAMAGES THE
FOREGOING LIMITATIONS SHALL APPLY NOTWITHSTANDING THE FAILURE OF ANY
EXCLUSIVE REMEDIES.
10.8 Warranty Repair (Return to Factory): If TAC designates Return to Factory
as the appropriate problem resolution method, the following provisions
apply.
(a) During the first [**] days of the warranty period, Sycamore may at its
option provide an advance replacement of a defective Product. Sycamore
will repair or replace defective Product hardware covered under warranty
within[**] business days of receipt of the Product. The warranty period for
the replaced product shall be [**] days or the remainder of the warranty
period of the original unit, whichever is greater. Sycamore will ship
surface freight. Expedited freight is at end user's expense.
(b) The end user must return the defective Product to Sycamore within [**]
days of receipt of the replacement product. If the defective Product is not
returned within this time period, Sycamore will bill the end user for the
Product at list price, less Williams' discount, if applicable.
10.9 Out-of-Warranty Repair (Hardware): Sycamore will either repair or, at its
option, replace defective Product hardware not covered under warranty
within [**] working days of its receipt. Repair charges are available from
the Repair Facility upon request. The warranty on a serviced Product is
[**] days from date of shipment of the serviced unit. Out-of-warranty
repair charges are based upon the prices in effect at the time of return.
10.10 In the event that Sycamore, given full cooperation by Williams, is
unable, after repeated efforts over a period of no less than [**] days, to
correct significant and material non-conformances of
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<PAGE>
the Products to the specification in effect as of the sale of the Product,
Sycamore agrees that after good faith negotiations to resolve the matter,
Williams may elect to deem such circumstance a failure of Sycamore's
obligation of tender of delivery of conforming Product and Williams may
revoke its purchase.
11. Intellectual Property Rights
----------------------------
Except as described in this Agreement, Sycamore does not grant and Williams
acknowledges that it shall have no right, license or interest in any of the
patents, copyrights, trademarks, or trade secrets owned, used or claimed
now by Sycamore. All applicable rights to such patents, copyrights,
trademarks, and trade secrets are and will remain the exclusive property of
Sycamore Subject to the rights expressly granted to Williams by this
Agreement, title to and ownership of the intellectual property rights
contained in the Products or any part of the Products or Sycamore's
confidential information shall remain Sycamore's property.
12. Patent and Copyright Indemnification
------------------------------------
12.1 Sycamore agrees to indemnify and hold Williams harmless from and against
all claims and judicial or governmental determinations that the Products as
delivered by Sycamore under this Agreement infringe or misappropriate any
United States patent rights, copyrights, trade secrets, or trademarks.
Sycamore shall assume the defense of any such claim regardless as to its
ultimate validity, of infringement or misappropriation brought against
Williams in the United States by counsel retained at Sycamore's own
expense, provided that Williams promptly notifies Sycamore in writing of
such claim or the commencement of any such suit, action, proceeding or
threat covered by this Section. Sycamore shall maintain sole and exclusive
control of the defense and/or settlement of any such claim and Williams
shall cooperate in the defense of such claim.
12.2 In the event that the use or sale of all or any portion of the Products is
enjoined, or, in Sycamore's judgment, may be enjoined, as a result of a
suit based on alleged infringement or misappropriation of the third party
intellectual property rights, Sycamore agrees to either: (i) procure for
Williams the right to continue to use the Product, or (ii) replace or
modify the infringing or misappropriating Product so that it becomes non-
infringing. In the event that the foregoing alternatives cannot be
reasonably accomplished by Sycamore, Sycamore shall direct Williams to
return the Product to Sycamore and upon receipt of the Product(s), Sycamore
shall reimburse Williams for the price originally paid by Williams. Upon
Sycamore's fulfillment of the alternatives set out in this Section and
Section 12.1, Sycamore shall be relieved of any further obligation or
liability to Williams as a result of any such infringement or
misappropriation.
12.3 Regardless of any other provisions of this Agreement, this Section shall
not apply (i) to any designs, specifications or modifications originating
with or requested by Williams, or (ii) to the combination of any Product
with other equipment, software or products not supplied by Sycamore if such
infringement or misappropriation would not have occurred but for such
combination, or (iii) Williams failure to install an update provided at no
additional charge, where the update would have avoided the infringement
claim.
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12.4 THIS SECTION 12 STATES SYCAMORE'S ENTIRE LIABILITY TO WILLIAMS AND
WILLIAMS' SOLE REMEDY FOR ANY INFRINGEMENT OR MISAPPROPRIATION OF ANY
PATENT RIGHTS, COPYRIGHTS, TRADE SECRETS, TRADEMARKS OR OTHER INTELLECTUAL
PROPERTY RIGHTS.
13. General Indemnity
-----------------
Each party agrees to indemnify and hold harmless the other party (including
their directors, officers, employees, agents, representatives, affiliates,
and subcontractors) from and against any claims, damages and liabilities,
including reasonable attorney's fees, asserted by any person or entity due
to personal injury (including death) or tangible property damage to the
extent resulting from any negligent act or omission of such party;
provided, however, that such party shall not be liable for that portion of
liabilities which are caused by the sole negligence of the other party.
14. Limitation of Liability
-----------------------
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR INDIRECT, INCIDENTAL, SPECIAL,
CONSEQUENTIAL, EXEMPLARY PUNITIVE DAMAGES OR LOST PROFITS, WHETHER
FORESEEABLE OR UNFORESEEABLE, OF ANY KIND WHATSOEVER (INCLUDING, WITHOUT
LIMITATION, LOST PROFITS, LOSS OF GOODWILL, LOSS OR DAMAGED DATA OR
SOFTWARE (EXCEPT IN THE CASE OF SOFTWARE, AS STATED IN SYCAMORE'S WARRANTY
FOR SOFTWARE), LOSS OF USE OF THE PRODUCTS, DOWNTIME OR COSTS OF SUBSTITUTE
PRODUCTS OR EQUIPMENT) ARISING FROM THE SALE AND DELIVERY OF THE PRODUCTS
OR ANY OTHER ACT OF EITHER PARTY IN CONNECTION WITH THIS AGREEMENT, EVEN IF
SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. NO
LIMITATION AS TO DAMAGES FOR PERSONAL INJURY (INCLUDING DEALTH) OR TANGIBLE
PROPERTY DAMAGE IS HEREBY INTENDED. SOME STATES DO NOT ALLOW THE EXCLUSION
OR LIMITATION OF INCIDENTAL OR CONSEQUENTIAL DAMAGES AND THE ABOVE
EXCLUSION OR LIMITATION MAY NOT APPLY.
15. Confidentiality
---------------
15.1 For purposes of this Agreement, "Confidential Information" shall mean all
information (i) identified in written or oral format by the disclosing
party as confidential, trade secret or proprietary information and, if
disclosed orally, summarized in written format within ten (10) days of
disclosure.
15.2 Notwithstanding the foregoing, "Confidential Information" shall not include
---
any information which the receiving party can show: (a) is now or
subsequently becomes legally and publicly available without breach of this
Agreement by the receiving party, (b) was rightfully in the possession of
the receiving party without any obligation of confidentiality prior to
receiving it from the
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disclosing party, (c) was rightfully obtained by the
receiving party from a source other than the disclosing party without any
obligation of confidentiality, (d) was developed by or for the receiving
party independently and without reference to any Confidential Information
and such independent development can be shown by documentary evidence, or
(e) is disclosed pursuant to an order of a court or governmental agency as
so required by such order, provided that the receiving party shall first
notify the disclosing party of such order and afford the disclosing party
the opportunity to seek a protective order relating to such disclosure.
15.3 Both Parties agree not to use such Confidential Information except in their
performance under this Agreement. In addition, both parties shall treat
and protect such information in the same manner as it treats its own
information of like character, but with not less than reasonable care.
Both parties agree to take appropriate measures by instruction and written
agreement prior to disclosure of Confidential Information to their
employees to prevent unauthorized use or disclosure. The obligations of
this Section with regard to Confidential Information shall continue for a
period of three (3) years after termination or expiration of this
Agreement, except that the period with respect to any Confidential
Information identified as a trade secret shall be perpetual. Confidential
Information must be returned by the receiving party upon termination or
expiration of this Agreement.
15.4 In the event of a breach of any of the foregoing provisions, both parties
agree that the harm suffered by the disclosing party would not be
compensable by monetary damages alone and, accordingly, that the disclosing
party shall, in addition to other available legal or equitable remedies, be
entitled to an injunction against such breach.
16. Termination
-----------
16.1 Either party may terminate this Agreement at any time, with or without
cause, upon ninety (90) days prior written notice to the other party.
16.2 If Williams is in breach of this Agreement, Sycamore shall give Williams
thirty (30) days' prior written notice to cure such breach. If such breach
has not been cured to Sycamore's satisfaction within such thirty (30) day
period, then this Agreement shall automatically terminate at the end of
said thirty (30) day period without further notice to Williams. If
Williams is in breach of the Section entitled License of Software Products
and Firmware, and fails to cure such breach within five (5) days of notice,
Sycamore shall have the right to immediately terminate this Agreement.
16.3 This Agreement may be terminated for cause by either party in the event
that the other party: (i) shall become insolvent; (ii) commits an act of
bankruptcy; (iii) seeks an arrangement or compromise with its creditors
under any statute or otherwise; (iv) is subject to a proceeding in
bankruptcy, receivership, liquidation or insolvency and same is not
dismissed within thirty (30) days; (v) makes an assignment for the benefit
of the creditors; (vi) admits in writing its inability to pay its debts as
they mature; or (vii) ceases to function as a going concern or to conduct
its operations in the normal course of business.
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16.4 If Williams defaults under this Agreement, and does not cure such default
within thirty (30) days of receipt of Sycamore's written notice, Sycamore
shall have the right to take any or all of the following actions: (i)
declare this Agreement to be in default and all amounts payable under this
Agreement shall become immediately due and payable; (ii) suspend delivery
to Williams until the default is cured by Williams; (iii) proceed by court
action to enforce performance and/or recover damages; and/or (iv) terminate
this Agreement. If Sycamore continues to make shipments after Williams
default, Sycamore's action shall not constitute a waiver of any rights or
remedies, or affect Sycamore's legal remedies under this Agreement.
If Sycamore defaults under this Agreement, and does not cure such default
within thirty (30) days of receipt of Williams' written notice, Williams
shall have the right to take any or all of the following actions: (i)
declare this Agreement to be in default and all amounts payable under this
Agreement shall become immediately due and payable for all products
delivered and services performed prior to such termination; (ii) proceed by
court action to enforce performance and/or recover damages; and/or (iii)
terminate this Agreement. If Williams continues to order Products after
Sycamore's default, Williams' action shall not constitute a waiver of any
rights or remedies, or affect Williams' legal remedies under this
Agreement.
16.5 The termination or expiration of this Agreement shall in no case relieve
either party from its obligation to pay to the other any sums accrued under
this Agreement prior to such termination or expiration.
17. General
-------
17.1 Entire Agreement; Amendment; Authorized Personnel. This Agreement
--------------------------------------------------
supersedes all prior and contemporaneous agreements, representations,
warranties and understandings and contains the entire agreement between the
parties. No amendment, modification, termination, or waiver of any
provision of this Agreement or consent to any departure from this Agreement
shall be effective unless it is in writing and signed by a duly authorized
representative of each party. No failure or delay on the part of either
party in exercising any right or remedy under this Agreement shall operate
as a waiver of such right or remedy.
17.2 Assignment. This Agreement shall be binding upon and inure to the benefit
-----------
of the parties and their respective successors and assigns, but neither
party shall have the right to assign or otherwise transfer its rights under
this Agreement without receiving the express prior written consent of the
other party, such consent not to be unreasonably withheld.. Either party
may, however, assign this Agreement in the event of a sale of all or
substantially all of such party's assets or stock to which assignment the
both parties consent to now. Notwithstanding the foregoing, Williams may
assign this Agreement to any entity controlling, controlled by, or under
common control with Williams. Williams shall notify Sycamore in writing of
such assignment within a reasonable time thereafter.
17.3 Notices. All notices, requests, demands, and other communications provided
--------
for under this Agreement shall be in writing and in English to be sent by
registered or certified mail, postage prepaid, to the receiving party at
its address as set forth in this Agreement or to any other address
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that the receiving party may have provided to the sending party in writing.
When feasible, any such notice, request, demand or other communication
shall also be transmitted by facsimile as follows or to such other
facsimile number as provided by the receiving party in writing:
. Williams Facsimile Number: (918) 573-6578
ATTN: Contract Administration.
. Sycamore's Facsimile Number: ___________________
ATTN: General Counsel
Any notice, request, demand or other communication sent by facsimile will
be deemed to have been received on the day it is sent. Any notice,
request, demand or other communication sent by registered or certified mail
will be deemed to have been received on the seventh (7th) business day
after its date of posting, unless it is sent by facsimile prior to such
seventh (7th) business day.
17.4 Governing Law. This Agreement and all acts and transactions pursuant hereto
--------------
and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of New
York. The United Nations Convention on Contracts for the International Sale
of Goods is specifically excluded from application to this Agreement.
17.5 (reserved).
17.6 Counterparts; Severability; and Headings. This Agreement may be executed
-----------------------------------------
in any number of counterparts, each of which when executed and delivered
shall be deemed to be an original and all of which taken together shall
constitute one and the same instrument. The provisions of this Agreement
are declared to be severable. In the event that any provision contained in
this Agreement shall be held to be unenforceable or invalid, the remaining
provisions shall be given full effect, and the parties agree to negotiate,
in good faith, a substitute valid provision which most nearly approximates
the parties' intent. The failure of either party in any one or more
instances to enforce any of the terms of this Agreement shall not be
construed as a waiver of future enforcement of that or any other term.
Headings in this Agreement are included for reference only and shall not
constitute a part of this Agreement for any other purpose.
17.7 Force Majeure. Neither party shall be held responsible for any delays or
--------------
failure in performance caused in whole or in part by fires, strikes,
floods, embargoes, labor disputes, delays or failures of subcontractors,
acts of sabotage, riots, accidents, delays of carriers, voluntary or
mandatory compliance with any governmental act, regulation or request, acts
of God or by public enemy, or any other causes beyond the party's
reasonable control. If such contingency shall occur, the defaulting party
may elect to either (a) suspend this Agreement for the duration of the
delaying cause, or (b) extend the duration of this Agreement by the length
of time the contingency endured, or the non-defaulting party may terminate
this Agreement upon giving ninety (90) days prior written notice.
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17.8 Survival. The parties agree that the provisions of the following
---------
Sections shall survive the expiration or earlier termination of this
Agreement for any reason: License of Software Products and Firmware,
Patent and Copyright Indemnification, Limitation of Liability, and
Confidentiality.
17.9 Training Services. Sycamore will provide at no charge to Williams, two (2)
one (1) - week sessions of on-site operational training of up to twenty
(20) students per class. Such classes will be provided on dates mutually
agreed to by the parties.
17.10 Escrow Program. Sycamore agrees to deposit Source Code, at Williams
expense, into Sycamore's Escrow Program, under an Escrow Agreement
mutually agreed to by the parties, upon William's notice that it wishes an
escrow deposit to be made. A sample of Sycamore's Escrow Agreement is
attached hereto as Exhibit D.
17.11 Insurance. Sycamore agrees to maintain, at all times during the term of
this Agreement, insurance in accordance with the terms and conditions of
Exhibit C hereto and incorporated herein by reference.
17.12 Prevailing Party. In any action or proceeding to enforce rights or
obligations under this Agreement, the prevailing party shall be entitled
to recover court costs and reasonable attorney's fees.
17.13 Time and Material Charges. If Sycamore invoices Williams time and
material charges for services provided, Sycamore agrees to provide
documentation to substantiate such charges.
17.14 Conflict of Interest. Sycamore will not pay any commissions, fees or
rebates to any employees of Williams, nor favor any employee of Williams
with gifts or entertainment. If Williams has reasonable cause to believe
that one of this provision has been violated, Sycamore agrees to cooperate
with Williams in its investigation.
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in
duplicate by their duly authorized representatives as of the effective date
written below.
SYCAMORE NETWORKS, INC. WILLIAMS COMMUNICATIONS, INC.
By: /s/ Despande By: /s/ Joseph P. [illegible]
---------------------------- -------------------------------
Name: Despande Name:
---------------------------- -------------------------------
Title: Chairman Title:
---------------------------- -------------------------------
Effective Date: March 5, 1999 Date:
----------------- -------------------------------
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
EXHIBIT A
to
SYCAMORE PURCHASE AND LICENSE AGREEMENT
ADDITIONAL TERMS AND CONDITIONS
--------------------------------
a) Williams represents and agrees that Sycamore's has been chosen as an
approved vendor to Williams to supply WDM Transponder Technology. The Term
(the "Term") of the Definitive Agreement shall be for three (3) years. In
year one of the Term, Williams agrees to a minimum purchase of [**], net
invoice value, in Sycamore product. This revenue commitment is based on
Williams Planning Engineering 1999 scheduled build out plans for
Transponder based systems in Spur locations.
b) Williams shall, have a nontransferable right to purchase shares of Sycamore
in Sycamore's initial public offering (IPO) of shares on a national
exchange to an upper limit, unless otherwise agreed, equal to that number
of shares, which when multiplied by the IPO price as listed on the cover
page of the final prospectus relating to Sycamore's IPO, equals 5% of the
dollar value of Williams' accumulated purchases of products and services,
(less any applicable discounts, taxes or charges for shipping, insurance,
and the like), made by Williams as of the date of the IPO, but in no event
more than 5% of the shares offered in such IPO.
c) Sycamore, as additional discount hereunder agrees to grant to Williams a
credit against future purchases by Williams under this Agreement, an amount
equal to [**]% of the net purchase price of sales of Sycamore Products SN
6000/8001 made to future customers prior to December 31, 1999. This credit
may be used for the purchase of Sycamore Products under this agreement only
and is not redeemable in any other matter. Upon expiration or termination
of this Agreement any unused portion of the credit will expire.
d) Upon completing a successful implementation of Sycamore product into
Williams network, Sycamore and Williams agree to engage in joint press
activity to the mutual benefit of both companies. The level of activity and
timing of any announcements will be by mutual agreement.
e) Any adjustment of the discount to which Williams is entitled, except for
corrections to mathematical or administrative errors in the computation of
such discount, shall not be retroactive with regard to Products purchased
and delivered prior to the adjustment of such discount.
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
EXHIBIT B
to
SYCAMORE PURCHASE AND LICENSE AGREEMENT
Pricing and Discounts
---------------------
Sycamore agrees, during the term of this Agreement to extended a [**] product
discount on Sycamore's then-current end-user pricing in effect as of the date of
Williams' orders.
Sycamore represents that [**]. In the event that Sycamore [**].
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EXHIBIT C
to
SYCAMORE PURCHASE AND LICENSE AGREEMENT
INSURANCE TERMS
[NOTE: Sycamore's insurance binder to be attached.]
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EXHIBIT D
to
SYCAMORE PURCHASE AND LICENSE AGREEMENT
YEAR 2000 Statement
Sycamore Year 2000 (Y2K) Compliance
Corporate Statement
Sycamore Networks recognizes the genuine and particular concerns of the
telecommunications industry with regard to year 2000 performance issues and is
committed to ensure that Sycamore's Products meet the requirements of Sycamore's
customers in this critical area.
Sycamore Network's commits that its Products will comply with
telecommunications industry Year 2000 standards as set forth in each applicable
Product specification.
More specifically, to the extent that any Sycamore Software or Products
report or utilize dates, all such Software and Products, will be Year 2000
compliant and will meet telecommunication industry Year 2000 standards.
SYCAMORE shall ensure that any SYCAMORE provided programs or systems with which
its Software communicates or integrates and which utilize dates, are Year 2000
compliant and, If requested by Sycamore's Customer, Sycamore shall provide the
Customer with results of Year 2000 compliance tests previously conducted or will
agree to jointly conduct mutually agreed to Year 2000 compliance tests with the
Customer.
In the event the Products or Software do not comply or such tests
demonstrate that Sycamore's Software or Sycamore's Products are not Year 2000
compliant, as provided herein, Sycamore's obligation shall be to carry out or
procure the carrying out of all necessary enhancements or upgrades to the
Software or the Products at its own cost at Sycamore's manufacturing facility.
Sycamore shall not be obligated to make enhancements or upgrades in the
event such tests demonstrate that the Year 2000 non-compliance results from non-
Sycamore supplied programs or systems, or from Sycamore's compliance with an
industry standard specification in effect as of the date of manufacture.
The preceding statement is made pursuant to the United States Year 2000
Information and Readiness Disclosure Act (Public Law 105-271; 112 Stat. 2386).
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EXHIBIT E
to
SYCAMORE PURCHASE AND LICENSE AGREEMENT
THREE-PARTY ESCROW AGREEMENT
BETWEEN
PRODUCER, FORT KNOX AND SINGLE LICENSEE
This is an Example:
- -------------------
This escrow agreement is intended for use by a Producer (Licensor), a
single Licensee (End User) and Fort Knox Escrow Services, Inc. Any number of
escrow products may be stored in escrow for the Licensee under the terms of this
agreement. All parties sign the contract.
Software Escrow Agreement
This Escrow Agreement ("Agreement") is made as of this ___ day of
_________________, 199__, by and between _____________________________________
("Producer"), Fort Knox Escrow Services, Inc. ("Fort Knox") and
________________________________________________________________________________
______________ (Licensee").
Preliminary Statement. Producer intends to deliver to Fort Knox a sealed
---------------------
package containing magnetic tapes, disks, disk packs, or other forms of media,
in machine readable form, and the written documentation prepared in connection
therewith, and any subsequent updates or changes thereto (the "Deposit
Materials") for the computer software products (the "System(s)"), all as
identified from time to time on Exhibit B hereto. Producer desires Fort Knox to
hold the Deposit Materials, and, upon certain events, deliver the Deposit
Materials (or a copy thereof) to Licensee, in accordance with the terms hereof.
Now, therefore, in consideration of the foregoing, of the mutual promises
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. Delivery by Producer. Producer shall be solely responsible for
--------------------
delivering to Fort Knox the Deposit Materials as soon as practicable. Fort Knox
shall hold the Deposit Materials in accordance with the terms hereof. Fort Knox
shall have no obligation to verify the completeness or accuracy of the Deposit
Materials.
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----------------------
<PAGE>
2. Duplication; Updates.
--------------------
(a) Fort Knox may duplicate the Deposit Materials by any means in order to
comply with the terms and provisions of this Agreement, provided that Licensee
shall bear the expense of duplication. Alternatively, Fort Knox, by notice to
Producer, may reasonably require Producer to promptly duplicate the Deposit
Materials.
(b) Producer shall deposit with Fort Knox any modifications, updates, new
releases or documentation related to the Deposit Materials by delivering to Fort
Knox an updated version of the Deposit Materials ("Additional Deposit") as soon
as practicable after the modifications, updates, new releases and documentation
have been developed by Producer. Fort Knox shall have no obligation to verify
the accuracy or completeness of any Additional Deposit or to verify that any
Additional Deposit is in fact a copy of the Deposit Materials or any
modification, update, or new release thereof.
3. Notification of Deposits. Simultaneous with the delivery to Fort Knox
------------------------
of the Deposit Materials or any Additional Deposit, as the case may be, Producer
shall deliver to Fort Knox and to Licensee a written statement specifically
identifying all items deposited and stating that the Deposit Materials or any
Additional Deposit, as the case may be, so deposited have been inspected by
Producer and are complete and accurate. Fort Knox shall, within ten (10)
business days of receipt of any Deposit Materials, send notification to Producer
and Licensee that it has received from Producer such Deposit Materials.
4. Delivery by Fort Knox
---------------------
4.1 Delivery by Fort Knox to Licensee. Fort Knox shall deliver the
---------------------------------
Deposit Materials, or a copy thereof, to Licensee only in the event that:
(a) Producer notifies Fort Knox to effect such delivery to Licensee at a
specific address, the notification being accompanied by a check payable to Fort
Knox in the amount of one hundred dollars ($100.00); or
(b) Fort Knox receives from Licensee:
(i) the occurrence of one of the following escrow release events:
(1) the making by Producer of a general assignment for the
benefit of creditors and the unwillingness or inability of
Producer to provide support for the licensed software;
(2) any action by Producer under any federal or state insolvency
or similar law for the purpose of its bankruptcy, reorganization
or liquidation and the unwillingness or inability of Producer to
provide support for the licensed software;
(3) Producer's failure to continue in business without a
successor and the unwillingness or inability of Producer to
provide support for the licensed software;
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----------------------
<PAGE>
(ii) evidence satisfactory to Fort Knox that Licensee has previously
notified Producer of such Producer Default in writing;
(iii) a written demand that the Deposit Materials be released and
delivered to Licensee;
(iv) a written undertaking from the Licensee that the Deposit
Materials being supplied to the Licensee will be used only as
permitted under the terms of the License Agreement;
(v) specific instructions from the Licensee for this delivery; and
(vi) an initial check payable to Fort Knox in the amount of one
hundred dollars ($100.00).
(c) If the provisions of paragraph 4.1(a) are satisfied, Fort Knox shall,
within five (5) business days after receipt of the notification and check
specified in paragraph 4.1(a), deliver the Deposit Materials in accordance with
the applicable instructions.
(d) If the provisions of paragraph 4.1(b) are met, Fort Knox shall, within
five (5) business days after receipt of all the documents specified in paragraph
4.1(b), send by certified mail to Producer a photostatic copy of all such
documents. Producer shall have thirty (30) days from the date on which Producer
receives such documents ("Objection Period") to notify Fort Knox of its
objection ("Objection Notice") to the release of the Deposit Materials to
Licensee and to request that the issue of Licensee's entitlement to a copy of
the Deposit Materials be submitted to arbitration in accordance with the
following provisions:
(i) If Producer shall send an Objection Notice to Fort Knox during
the Objection Period, the matter shall be submitted to, and
settled by arbitration by, a panel of three (3) arbitrators
chosen by the Atlanta Regional Office of the American Arbitration
Association in accordance with the rules of the American
Arbitration Association. The arbitrators shall apply Georgia
law. At least one (1) arbitrator shall be reasonably familiar
with the computer software industry. The decision of the
arbitrators shall be binding and conclusive on all parties
involved, and judgment upon their decision may be entered in a
court of competent jurisdiction. All costs of the arbitration
incurred by Fort Knox, including reasonable attorneys' fees and
costs, shall be paid by the party which does not prevail in the
arbitration; provided, however, if the arbitration is settled
prior to a decision by the arbitrators, the Producer and Licensee
shall each pay 50% of all such costs.
(ii) Producer may, at any time prior to the commencement of
arbitration proceedings, notify Fort Knox that Producer has
withdrawn the Objection Notice. Upon receipt of any such notice
from Producer, Fort Knox shall reasonably promptly deliver the
Deposit Materials to Licensee in accordance with the instructions
specified in paragraph 4.1(b)(v).
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----------------------
<PAGE>
(e) If, at the end of the Objection Period, Fort Knox has not received an
Objection Notice from Producer, then Fort Knox shall reasonably promptly deliver
the Deposit Materials to Licensee in accordance with the instructions specified
in paragraph 4.1(b)(v). Both Producer and Licensee agree that Fort Knox shall
not be required to deliver such Deposit Materials until all such fees then due
Fort Knox have been paid.
4.2 Delivery by Fort Knox to Producer. Fort Knox shall release and
---------------------------------
deliver the Deposit Materials to Producer upon termination of this Agreement in
accordance with paragraph 7(a) hereof.
5. Indemnity. Producer and Licensee shall, jointly and severally,
---------
indemnify and hold harmless Fort Knox and each of its directors, officers,
agents, employees and stockholders ("Fort Knox Indemnities") absolutely and
forever, from and against any and all claims, actions, damages, suits,
liabilities, obligations, costs, fees, charges, and any other expenses
whatsoever, including reasonable attorneys' fees and costs, that may be asserted
against any Fort Knox Indemnitee in connection with this Agreement or the
performance of Fort Knox or any Fort Knox Indemnitee hereunder.
6. Disputes and Interpleader.
-------------------------
(a) Fort Knox may submit the matter to any court of competent jurisdiction
in an interpleader or similar action other than a matter submitted to
arbitration after Fort Knox's receipt of an Objection Notice under Section 4 and
the parties under this Agreement submit the matter to such arbitration as
described in Section 4 of this Agreement. Any and all costs incurred by Fort
Knox in connection therewith, including reasonable attorneys' fees and costs,
shall be borne 50% by each of Producer and Licensee.
(b) Fort Knox shall perform any acts ordered by any court of competent
jurisdiction, without any liability or obligation to any party hereunder by
reason of such act.
7. Term and Renewal.
----------------
(a) The initial term of this Agreement shall be two (2) years, commencing
on the date hereof (the "Initial Term"). This Agreement shall be automatically
extended for an additional term of one year ("Additional Term") at the end of
the Initial Term and at the end of each Additional Term hereunder unless, on or
before ninety (90) days prior to the end of the Initial Term or an Additional
Term, as the case may be, any party notifies the other parties that it wishes to
terminate the Agreement at the end of such term.
(b) In the event of termination of this Agreement in accordance with
paragraph 7(a) hereof, Licensee shall pay all fees due Fort Knox and shall
promptly notify Producer that this Agreement has been terminated and that Fort
Knox shall return to Producer all copies of the Deposit Materials then in its
possession.
8. Fees. Producer and Licensee shall pay to Fort Knox the applicable
----
fees in accordance with Exhibit A as compensation for Fort Knox's services under
this Agreement. The first years fees are due upon receipt of the signed
contract or Deposit Materials, whichever comes first and shall be paid in U.S.
Dollars.
(a) Payment. Fort Knox shall issue an invoice to Licensee following
-------
execution of this Agreement ("Initial Invoice"), on the commencement of any
Additional Term hereunder, and in connection
24
CONFIDENTIAL AND PROPRIETARY INFORMATION OF
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SYCAMORE NETWORKS, INC.
----------------------
<PAGE>
with the performance of any additional services hereunder. Payment is due upon
receipt of invoice. All fees and charges are exclusive of, and Licensee is
responsible for the payment of, all sales, use and like taxes. Fort Knox shall
have no obligations under this Agreement until the Initial Invoice has been paid
in full by Licensee.
(b) Nonpayment. In the event of non-payment of any fees or charges
----------
invoiced by Fort Knox, Fort Knox shall give notice of non-payment of any fee due
and payable hereunder to the Licensee and, in such an event, the Licensee shall
have the right to pay the unpaid fee within ten (10) days after receipt of
notice from Fort Knox. If Licensee fails to pay in full all fees due during
such ten (10) day period, Fort Knox shall give notice of non-payment of any fee
due and payable hereunder to Producer and, in such event, Producer shall have
the right to pay the unpaid fee within ten (10) days of receipt of such notice
from Fort Knox. Upon payment of the unpaid fee by either the Producer or
Licensee, as the case may be, this Agreement shall continue in full force and
effect until the end of the applicable term. Failure to pay the unpaid fee under
this paragraph 8(b) by both Producer and Licensee shall result in termination of
this Agreement.
9. Ownership of Deposit Materials. The parties recognize and acknowledge
------------------------------
that ownership of the Deposit Materials shall remain with Producer at all times.
10. Available Verification Services. Upon receipt of a written request
-------------------------------
from Licensee, Fort Knox and Licensee may enter into a separate agreement
pursuant to which Fort Knox will agree, upon certain terms and conditions, to
inspect the Deposit Materials for the purpose of verifying its relevance,
completeness, currency, accuracy and functionality ("Technical Verification
Agreement"). Upon written request from Producer, Fort Knox will issue to
Producer a copy of any written technical verification report rendered in
connection with such engagement. If Fort Knox and Licensee enter into such
Technical Verification Agreement, Producer shall reasonably cooperate with Fort
Knox by providing its facilities, computer systems, and technical and support
personnel for technical verification whenever reasonably necessary. If
requested by Licensee, Producer shall permit one employee of Licensee to be
present at Producer's facility during any such verification of the Deposit
Materials.
11. Bankruptcy. Producer and Licensee acknowledge that this Agreement is
----------
an "agreement supplementary to" the License Agreement as provided in Section 365
(n) of Title 11, United States Code (the "Bankruptcy Code"). Producer
acknowledges that if Producer as a debtor in possession or a trustee in
Bankruptcy in a case under the Bankruptcy Code rejects the License Agreement or
this Agreement, Licensee may elect to retain its rights under the License
Agreement and this Agreement as provided in Section 365 (n) of the Bankruptcy
Code. Upon written request of Licensee to Producer or the Bankruptcy Trustee,
Producer or such Bankruptcy Trustee shall not interfere with the rights of
Licensee as provided in the License Agreement and this Agreement, including the
right to obtain the Deposit Material from Fort Knox.
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<PAGE>
12. Miscellaneous.
-------------
(a) Remedies. Except for intentional misrepresentation, gross negligence
--------
or intentional misconduct, Fort Knox shall not be liable to Producer or to
Licensee for any act, or failure to act, by Fort Knox in connection with this
Agreement. Any liability of Fort Knox regardless of the cause shall be limited
to the fees exchanged under this Agreement. Fort Knox will not be liable for
special, indirect, incidental or consequential damages hereunder.
(b) Natural Degeneration; Updated Version. In addition, the parties
-------------------------------------
acknowledge that as a result of the passage of time alone, the Deposit Materials
are susceptible to loss of quality ("Natural Degeneration"). It is further
acknowledged that Fort Knox shall have no liability or responsibility to any
person or entity for any Natural Degeneration. For the purpose of reducing the
risk of Natural Degeneration, Producer shall deliver to Fort Knox a new copy of
the Deposit Materials at least once every three years.
(c) Permitted Reliance and Abstention. Fort Knox may rely and shall be
---------------------------------
fully protected in acting or refraining from acting upon any notice or other
document believed by Fort Knox in good faith to be genuine and to have been
signed or presented by the proper person or entity. Fort Knox shall have no
duties or responsibilities except those expressly set forth herein.
(d) Independent Contractor. Fort Knox is an independent contractor, and is
----------------------
not an employee or agent of either the Producer or Licensee.
(e) Amendments. This Agreement shall not be modified or amended except by
----------
another agreement in writing executed by the parties hereto.
(f) Entire Agreement. This Agreement, including all exhibits hereto,
----------------
supersedes all prior discussions, understandings and agreements between the
parties with respect to the matters contained herein, and constitutes the entire
agreement between the parties with respect to the matters contemplated herein.
All exhibits attached hereto are by this reference made a part of this Agreement
and are incorporated herein.
(g) Counterparts; Governing Law. This Agreement may be executed in
---------------------------
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
Agreement. This Agreement shall be construed and enforced in accordance with
the laws of the State of Georgia.
(h) Confidentiality. Fort Knox will hold and release the Deposit Materials
---------------
only in accordance with the terms and conditions hereof, and will maintain the
confidentiality of the Deposit Materials.
(i) Notices. All notices, requests, demands or other communications
-------
required or permitted to be given or made under this Agreement shall be in
writing and shall be delivered by hand or by commercial overnight delivery
service which provides for evidence of receipt, or mailed by certified mail,
return receipt requested, postage prepaid. If delivered personally or by
commercial overnight delivery service, the date on which the notice, request,
instruction or document is delivered shall be the date on which delivery is
deemed to be made, and if delivered by mail, the date on which such notice,
request, instruction or document is
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<PAGE>
received shall be the date on which deliveryis deemed to be made. Any party may
change its address for the purpose of this Agreement by notice in writing to the
other parties as provided herein.
(j) Survival. Paragraphs 5, 6, 8, 9 and 12 shall survive any termination
--------
of this Agreement.
(k) No Waiver. No failure on the part of any party hereto to exercise, and
---------
no delay in exercising any right, power or single or partial exercise of any
right, power or remedy by any party will preclude any other or further exercise
thereof or the exercise of any other right, power or remedy. No express waiver
or assent by any party hereto to any breach of or default in any term or
condition of this Agreement shall constitute a waiver of or an assent to any
succeeding breach of or default in the same or any other term or condition
hereof.
IN WITNESS WHEREOF each of the parties has caused its duly authorized
officer to execute this Agreement as of the date and year first above
written.
Fort Knox Escrow Services, Inc.
3539A Church Street Phone: 1-800-875-5669
Clarkston, Georgia 30021-1717 Fax: 1-404-298-2010
E-mail: [email protected]
By:-------------------------- Title: --------------------------
Print Name:----------------------------------------------------
Producer
By:-------------------------- Title: --------------------------
Print Name:----------------------------------------------------
Address:-------------------------------------------------------
Phone:---------------------------------------------------------
Fax:-----------------------------------------------------------
E-mail:--------------------------------------------------------
Licensee
By:-------------------------- Title: --------------------------
Print Name:----------------------------------------------------
Address:-------------------------------------------------------
Phone:---------------------------------------------------------
Fax:-----------------------------------------------------------
E-mail:--------------------------------------------------------
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<PAGE>
EXHIBIT A
FEE SCHEDULE
Fees to be paid by Licensee shall be as follows:
Initialization fee (one time only) $850
($765 for current clients)
Annual maintenance/storage fee
. includes two Deposit Material updates $900
. includes one cubic foot of storage space (foreign $1,000)
International (outside of U.S) - $1,000/product
Additional Updates $150
(above two per year)
Additional Storage Space $150/cubic foot
Payable by Licensee or Producer:
Due Upon Licensee's or Producer's
Request for Release of Deposit Materials $100 for initial 2 hrs
$50/hour for
additional hours
A ten percent discount is credited towards the initialization fee for current
Fort Knox clients. Fees due upon receipt of signed contract or Deposit
Material, whichever comes first and shall be paid in U.S. Dollars. Thereafter,
fees shall be subject to their current pricing, provided that such prices shall
not increase by more than 10% per year. An invoice for all renewal fees will be
issued on the anniversary of the initial invoice.
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<PAGE>
EXHIBIT B
B1. Product Name: ____________________________________________________
Version #:________________________________________________________
Prepared and Confirmed by: ________________________________________________
Title: _________________________________________ Date: __________________
Signature: _______________________________________________________________
Type of deposit:
- ----------------
____ Initial Deposit
____ Update Deposit to replace current deposits
____ Other (pleas describe)___________________________________________
Items Deposited:
- ----------------
Quantity Media Type Description of Material
A) ___________ ________________ _______________________
B) ___________ ________________ _______________________
C) ___________ ________________ _______________________
(please copy page as necessary)
29
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<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
EXHIBIT F
to
SYCAMORE PURCHASE AND LICENSE AGREEMENT
MAINTENANCE OPTIONS
Sycamore Support Services
7 x 24 TAC Support Contract Software Maintenance Contract
Resident Support Engineer Contract Hardware Maintenance Contracts
Time & Material Order Return-to-Factory Repair Service
Standard Product Training Customized Product Training
Support Packages:
Basic:
Includes: Software Maintenance Contract
7 x 24 TAC Support Contract
Package Price: [**] of End User Price
Standard:
Includes: Software Maintenance Contract
7 x 24 TAC Support Contract
Hardware Maintenance Contract (Return/Repair)
Package Price: [**] of End User Price
Premium:
Includes: Software Maintenance Contract
7 x 24 TAC Support Contract
Hardware Maintenance Contract (Advanced Exchange)
Package Price: [**] of End User Price
30
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<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
1. 7 x 24 TAC Support Contract
1.1 Service Description:
A. TAC Support includes 7 x 24 priority access to Sycamore's Technical
Assistance Center. Priority support calls are routed to a Sycamore
Network Support Engineer within ten (10) minutes during normal
business hours and within twenty (20) minutes outside normal
business hours.
B. Sycamore Normal Business Hours:
8:30 a.m. - 5:30 p.m. EST Monday thru Friday
Excluding Sycamore Holidays
C. Customers may call Sycamore's Technical Assistance Center Support
toll-free number for technical support and problem diagnosis.
D. Electronic access to Sycamore's bulletin board service via
www.sycamorenet.com, provides Customers with: technical tips,
software release notes, and problem status reports.
1.2 Service Eligibility:
A. Customer must possess a valid Sycamore TAC Support Contract or
Sycamore Software Maintenance Contract.
B. Customer must be in good credit standing with Sycamore.
1.3 Service Pricing:
A la carte: [**] of List Price
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<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
2. Hardware Maintenance Contract (Return/Repair)
2.1 Service Description:
A. The Customer must make a request for return by contacting
Sycamore's Technical Support Center (TAC) and requesting a Return
Material Authorization (RMA). Access to the TAC is available Monday
through Friday, between 8:30 a.m. and 5:30 p.m., Eastern Time.
B. Sycamore shall repair or replace (at its option) the malfunctioning
product and return a functioning product to the Customer's site
within [**] days of Sycamore's receipt of the malfunctioning
product.
2.2 Service Eligibility:
A. Customer must possess a valid Sycamore Hardware Maintenance Service
Contract.
B. Customer must be in good credit standing with Sycamore.
C. Customer must obtain a Sycamore RMA number and must externally
label the product packaging with the Sycamore RMA number. Any
materials returned to Sycamore without prior authorization and
proper labeling will be exempt from the stated Service Description.
2.3 Service Pricing:
A la carte: [**] of List Price
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<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
3. Hardware Maintenance Contract (Advanced Exchange)
3.1 Service Description:
A. Sycamore provides an advanced exchange replacement product upon
qualification of defect by Sycamore support personnel.
B. The Customer must make a request for return by contacting Sycamore's
Technical Support Center (TAC) and requesting a Return Material
Authorization (RMA). Access to the TAC is available Monday through
Friday, between 8:30 a.m. and 5:30 p.m., Eastern Time.
C. All eligible advanced exchange RMA requests for replacement products
received before 3:00 p.m., Eastern Time will be shipped for arrival at
the Customer site the next business day.
D. All eligible RMA requests made after 3:00 p.m. will be shipped the
following day for delivery at the Customer site [**] business days from
the date of the RMA request.
E. Customer shall return the malfunctioning product to Sycamore within [**]
days of receipt of the replacement product. Malfunctioning product not
returned to Sycamore within [**] days of Customer's receipt of
replacement product shall be invoiced at Sycamore's then-current list
price.
F. The replacement products are provided to Customer at no cost provided
the replacement was due to malfunction or normal wear and tear of the
product and not due to causes external to the product. Otherwise, the
product is provided at the then-current Sycamore list price, plus
shipping and handling costs.
3.2 Service Eligibility:
A. Customer must possess a valid Sycamore Hardware Maintenance Service
Contract.
B. Customer must be in good credit standing with Sycamore.
C. Customer must obtain a Sycamore RMA number and must externally label the
product packaging with the Sycamore RMA number. Any materials returned
to Sycamore without prior authorization and proper labeling will be
exempt from the stated Service Description.
3.3 Service Pricing:
A la carte: [**] of List Price
CONFIDENTIAL AND PROPRIETARY INFORMATION OF
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SYCAMORE NETWORK, INC
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<PAGE>
4. Return-to-Factory Repair Service
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
4.1 Service Description:
A. As a per incident service, Sycamore shall repair or replace (at its
option) the malfunctioning product and return a functioning product
to the Customer's site within [**] days of Sycamore's receipt of the
malfunctioning product.
B. Beyond the Standard Hardware Warranty period, Sycamore warrants its
work performed for a period of [**] days from the date of shipment
from Sycamore to the Customer.
4.2 Service Eligibility:
A. Customer must provide a purchase order or other form of acceptable
payment (at Sycamore's discretion) prior to returning the defective
product.
B. Customer must be in good credit standing with Sycamore.
C. Customer must obtain a Sycamore RMA number and must externally label
the product packaging with the Sycamore RMA number. Any materials
returned to Sycamore without prior authorization and proper labeling
will be exempt from the stated Service Description.
4.3 Service Pricing:
Quoted by Sycamore TAC at time of service request.
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<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
5. Software Maintenance Contract
5.1 Service Description:
A. All Sycamore software releases performed during the software
maintenance period will be provided to the Customer at no additional
charge.
B. Sycamore will notify the Customer under contract of all generally
available software releases.
C. Sycamore may choose to distribute all software and documentation
updates either electronically (www.sycamorenet.com) or on physical
media (CD, diskette, tape, etc.).
D. Release Notes outlining software modifications, known deficiencies
and upgrade/installation procedures are provided as part of the
service.
E. User Documentation updates, if applicable, is provided as part of
the service.
F. Sycamore will provide revision and enhancement release information
as it becomes available for general release, relating to
availability of code corrections, work-around procedures and
limitations of Covered Products.
G. Periodic software problem status reports including information
concerning software enhancements, bugs and documentation updates.
H. Purchase of Software Maintenance Contract also includes 7 x 24 TAC
Support Services.
5.2 Service Eligibility:
A. Customer must possess a valid Sycamore Software Maintenance Service
Contract.
B. Customer must be in good credit standing with Sycamore.
5.3 Service Pricing:
A la carte: [**] of List Price
35
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<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
6. Resident Support Engineer Contract
6.1 Service Description:
A. Sycamore provides a full-time qualified support engineer on-site at
the Customer's location.
B. Sycamore Resident Engineer provides technical consultation, assists
in problem isolation, assists in planning and executing network
activities (e.g. installations, upgrades, etc.) and manages issue
resolution with Customer and Sycamore personnel.
C. Standard work-hours (# of hours and time-of-day) apply. However,
non-standard work hours can be scheduled on an as needed basis.
6.2 Service Eligibility:
A. Customer must purchase a Sycamore Resident Support Engineer
Contract.
B. Customer must be in good credit standing with Sycamore.
6.3 Service Pricing:
[**] / year
36
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---------------------
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
7. Time & Material Order
7.1 Service Description:
A. Customer may contract Sycamore Support Engineer(s) for on-site
installation, upgrade or problem isolation services.
B. Customer must provide a description of work requested, date and time
required, location and materials required.
7.2 Service Eligibility:
A. Customer must provide a purchase order or other form of acceptable
payment (at Sycamore's discretion) prior to receiving service.
B. Customer must be in good credit standing with Sycamore.
7.3 Service Pricing:
Contact Sycamore TAC for quotation based upon rates below:
Hourly Labor Charges (portal-to-portal):
Monday through Friday, 8:30 AM - 5:30 PM $[**]
All other times $[**]
$[**] Minimum Labor Charge
Travel Charges (distance Sycamore must travel):
0-50 miles $[**]
51-500 $[**]
501-1,000 $[**]
1,001-1,500 $[**]
1,501-3,000 $[**]
Greater than 3,000 miles [**]
37
CONFIDENTIAL AND PROPRIETARY INFORMATION OF
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<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
8. Standard Product Training
8.1 Service Description:
A. Sycamore qualified instructor provides training on product
installation, configuration, operations, management and diagnosis.
B. Course materials (overheads, handouts, etc.) are provided to each
student.
C. Hands-on laboratory exercises are provided (if applicable). All
instructional equipment provided by Sycamore.
D. Classes are offered at Sycamore Education facilities or can be
brought directly to the customer's site (additional travel and
expense charges will be applied).
8.2 Service Eligibility:
A. Customer must provide a purchase order or other form of acceptable
payment (at Sycamore's discretion) prior to attending training.
B. Customer must be in good credit standing with Sycamore.
8.3 Service Pricing:
Sycamore Facility:
Training Cost (per student): $[**] per day
Customer Location:
Training Cost (per student): $[**] per day
Travel: $[**] per course delivered
Expenses: $[**] per day
38
CONFIDENTIAL AND PROPRIETARY INFORMATION OF
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---------------------
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
9. Customized Product Training
9.1 Service Description:
A. Sycamore will modify existing or create new materials to provide
Customer-specified training.
B. Sycamore qualified instructor provides the customized training.
C. Course materials (overheads, handouts, etc.) are provided to each
student.
D. Hands-on laboratory exercises are provided (if applicable). All
instructional equipment provided by Sycamore.
E. Classes are offered at Sycamore Education facilities or can be
brought directly to the customer's site (additional travel and
expense charges will be applied).
9.2 Service Eligibility:
A. Customer must provide a purchase order or other form of acceptable
payment (at Sycamore's discretion) prior to attending training.
B. Customer must be in good credit standing with Sycamore.
9.3 Service Pricing:
Sycamore Facility:
Course Customization: $[**] per hour ($[**] minimum)
(estimate provided at time of request)
Training Cost (per student): $[**] per day
Customer Location:
Course Customization: $[**] per hour ($[**] minimum)
(estimate provided at time of request)
Training Cost (per student): $[**] per day
Travel: $[**] per course
Expenses: $[**] per day
39
CONFIDENTIAL AND PROPRIETARY INFORMATION OF
-------------------------------------------
SYCAMORE NETWORK, INC
---------------------
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
LegalO-Z/Whalen_Patricia/Legal/107761.117/ex_s.wpf
40
CONFIDENTIAL AND PROPRIETARY INFORMATION OF
-------------------------------------------
SYCAMORE NETWORK, INC
---------------------
<PAGE>
EXHIBIT 10.4
SYCAMORE NETWORKS, INC.
10 Elizabeth Drive
Chelmsford, MA 01824
April 22, 1999
Fleet National Bank
One Federal Street
Boston, MA 02110
Gentlemen:
This letter agreement will set forth certain understandings between
Sycamore Networks, Inc., a Delaware corporation (the "Borrower"), and Fleet
National Bank (the "Bank") with respect to Term Loans (hereinafter defined) to
be made by the Bank to the Borrower. In consideration of the mutual promises
contained herein and in the other documents referred to below, and for other
good and valuable consideration, receipt and sufficiency of which are hereby
acknowledged, the Borrower and the Bank agree as follows:
I. AMOUNTS AND TERMS
-----------------
1.1. References to Documents. Reference is made to (i) that certain
-----------------------
$5,000,000 face principal amount promissory note (the "1999 Term Note") of even
date herewith made by the Borrower and payable to the order of the Bank, (ii)
that certain Inventory and Accounts Receivable Security Agreement and that
certain Supplementary Security Agreement - Security Interest in Goods and
Chattels, each of even date herewith, from the Borrower to the Bank
(collectively, the "Security Agreement"), and (iii) that certain $1,000,000 face
principal amount Commercial Equipment Line of Credit Term Promissory Note dated
August 5, 1998 (the "1998 Term Note") made by the Borrower and payable to the
order of the Bank.
1.2. The Borrowing; 1999 Term Note. Subject to the terms and conditions
-----------------------------
hereinafter set forth, the Bank will make one or more loans (the "1999-2000 Term
Loans") to the Borrower, as the Borrower may request, on any Business Day prior
to the first to occur of (i) January 31, 2000 or (ii) the earlier termination of
the within-described term loan facility pursuant to (S)5.2 or (S)6.6. Each
1999-2000 Term Loan shall be made in order to finance costs of Qualifying
Equipment acquired by the Borrower within the 90 days preceding the request for
such 1999-2000 Term Loan (except that the initial 1999-2000 Term Loan may be
used to finance costs of Qualifying Equipment acquired by the Borrower at any
time on or after November 1, 1998), each such 1999-2000 Term Loan to be in such
amount as may be requested by the Borrower; provided that (i) no 1999-2000 Term
Loan will be made after January 31, 2000; (ii) the aggregate original principal
amounts of all 1999-2000 Term Loans will not exceed $5,000,000; and (iii) no
1999-2000 Term Loan will be in an amount in excess of 100% of the invoiced
actual costs of the items
<PAGE>
of Qualifying Equipment with respect to which such 1999-2000 Term Loan is made
(excluding taxes, shipping, installation charges, training fees and other "soft
costs" and excluding software except as expressly permitted by the next
following sentence). The Borrower may include within "Qualifying Equipment"
software (not including "shrink-wrapped" software) purchased by the Borrower for
use in connection with the equipment otherwise included in "Qualifying
Equipment"; provided that the aggregate cost of the software so included will
not exceed 20% of the aggregate principal amount of 1999-2000 Term Loans
outstanding at the Full Drawing Date (hereinafter defined). If for any reason
the aggregate cost of such software exceeds 20% of the aggregate principal
amount of 1999-2000 Term Loans outstanding at the Full Drawing Date, the
Borrower will forthwith repay those 1999-2000 Term Loans made to finance the
cost of such software to the extent necessary so that the aggregate cost of
software financed by 1999-2000 Term Loans (and not so prepaid) will not exceed
20% of the then aggregate outstanding principal amount of the 1999-2000 Term
Loans. As used herein, "Full Drawing Date" means the earlier of: (i) January 31,
2000 or (ii) that date on which 1999-2000 Term Loans with an aggregate original
principal amount of $5,000,000 shall have been advanced. Prior to the making of
each 1999-2000 Term Loan, and as a precondition thereto, the Borrower will
provide the Bank with: (i) invoices supporting the costs of the relevant
Qualifying Equipment; (ii) such evidence as the Bank may reasonably require
showing that the Qualifying Equipment has been delivered to and installed at the
Borrower's Chelmsford, MA premises, has become fully operational, has been paid
for by the Borrower and is owned by the Borrower free of all liens and interests
of any other Person (other than the security interest of the Bank pursuant to
the Security Agreement); (iii) Uniform Commercial Code financing statements (if
needed) reflecting the relevant Qualifying Equipment with respect to which such
1999-2000 Term Loan is being made; and (iv) evidence satisfactory to the Bank
that the Qualifying Equipment is fully insured against casualty loss, with
insurance naming the Bank as secured party and first loss payee.
The 1999-2000 Term Loans will be evidenced by the 1999 Term Note. Interest
on the 1999-2000 Term Loans shall be payable at the times and at the rate
provided for in the 1999 Term Note. Overdue principal of any 1999-2000 Term
Loan and, to the extent permitted by law, overdue interest shall bear interest
at a fluctuating rate per annum which at all times shall be equal to the sum of
(i) four (4%) percent per annum plus (ii) the per annum rate otherwise payable
----
under the 1999 Term Note (but in no event in excess of the maximum rate from
time to time permitted by then applicable law), compounded monthly and payable
on demand. The Borrower hereby irrevocably authorizes the Bank to make or cause
to be made, on a schedule attached to the 1999 Term Note or on the books of the
Bank, at or following the time of making each 1999-2000 Term Loan and of
receiving any payment of principal, an appropriate notation reflecting such
transaction and the then aggregate unpaid principal balance of the 1999-2000
Term Loans. The amount so noted shall constitute prima facie evidence as to the
----- -----
amount owed by the Borrower with respect to principal of the 1999-2000 Term
Loans. Failure of the Bank to make any such notation shall not, however, affect
any obligation of the Borrower or any right of the Bank hereunder or under the
1999 Term Note.
1.3. Principal Repayment of 1999-2000 Term Loans. The Borrower shall
-------------------------------------------
repay the principal of the 1999-2000 Term Loans in 36 equal consecutive monthly
installments, commencing on February 1, 2000 and continuing on the first day of
each month thereafter. Each
-2-
<PAGE>
such monthly installment of principal of the 1999-2000 Term Loans shall be in an
amount equal to 1/36th of the aggregate principal amount of the 1999-2000 Term
Loans outstanding at the close of business on January 31, 2000. In any event,
the then outstanding principal balance of the 1999-2000 Term Loans and all
interest accrued but unpaid thereon shall be due and payable in full on January
1, 2003. If any installment of the 1999-2000 Term Loans is prepaid prior to its
regularly scheduled due date for any reason, in whole or in part, whether
voluntarily or involuntarily, prior to January 1, 2003, the Borrower will
forthwith pay to the Bank a fee (the "Termination Fee") in the amount of
$12,500. The Borrower may prepay, at any time or from time to time, without
premium or penalty (but subject to the aforesaid Termination Fee), the whole or
any portion of any 1999-2000 Term Loan; provided that each such principal
prepayment shall be accompanied by payment of all interest on the amount so
prepaid accrued but unpaid to the date of payment, and a prepayment in whole
shall be accompanied by said Termination Fee. Any partial prepayment of
principal of the 1999-2000 Term Loans will be applied to installments of
principal of the 1999-2000 Term Loans thereafter coming due in inverse order of
normal maturity. Amounts repaid or prepaid with respect to the 1999-2000 Term
Loans are not available for reborrowing.
1.4. 1998 Term Loans. Prior to the date hereof, the Bank has made certain
---------------
loans (the "1998 Term Loans") to the Borrower pursuant to the 1998 Term Note.
Principal of, and interest on, the 1998 Term Loans will be paid by the Borrower
at the times and at the rates provided for in the 1998 Term Note. The 1998 Term
Note is hereby amended: (i) by deleting from clause (c) of the first sentence
of Section 8 of the 1998 Term Note the words "ninety (90) days" and by
substituting in their stead the words "120 days", and (ii) by adding to clause
a(iv) of the first sentence of Section 9.1 of the 1998 Term Note, at the end of
such clause, the following words: "including other encumbrances specifically
permitted by Section 4.2 of the letter agreement dated April 22, 1999 between
the Bank and the Borrower". The 1998 Term Note is hereby further amended by
deleting in their entireties Sections 9.2 - 9.14, inclusive, of the 1998 Term
Note and by substituting in their stead Sections 4.2-4.13, inclusive, of the
letter agreement, all such provisions of the letter agreement (and any related
definitions) being deemed incorporated into the 1998 Term Note by this reference
and made a part thereof, as effectively as if set forth at length therein. The
1998 Term Note is hereby further amended by deleting in its entirety Section
9.16 of the 1998 Term Note and by substituting in its stead Sections 3.7 - 3.10,
inclusive, of the letter agreement, all such provisions of the letter agreement
(and any related definitions) being deemed incorporated into the 1998 Term Note
by this reference and made a part thereof, as effectively as if set forth at
length therein. The 1998 Term Note is hereby further amended by deleting in
their entireties the "Events of Default" described in clauses (a) - (l),
inclusive, of Section 10 of the 1998 Term Note and by substituting in their
stead, as "Events of Default" under the 1998 Term Note, the provisions of
clauses (a) - (o), inclusive, of Section 5.1 of the letter agreement, all such
provisions of the letter agreement (and any related definitions) being deemed
incorporated into the 1998 Term Note by this reference and made a part thereof,
as effectively as if set forth at length therein. For the purpose of the
incorporation by reference described above, references to "the letter agreement"
will be deemed to refer to the within letter agreement, as in effect at the date
of execution and delivery hereof, and without regard to any subsequent
termination.
-3-
<PAGE>
1.5. Advances and Payments. The proceeds of all 1999-2000 Term Loans
---------------------
shall be credited by the Bank to a general deposit account maintained by the
Borrower with the Bank. The proceeds of each 1999-2000 Term Loan will be used
by the Borrower solely to pay (or reimburse the Borrower for) the costs of
acquisition of Qualifying Equipment.
The Bank may charge any general deposit account of the Borrower at the Bank
with the amount of all payments of interest, principal and other sums due, from
time to time, under this letter agreement, the 1998 Term Note and/or the 1999
Term Note and/or with respect to any Obligations relating to ACH transactions;
and will thereafter notify the Borrower of the amount so charged. The failure
of the Bank so to charge any account or to give any such notice shall not affect
the obligation of the Borrower to pay interest, principal or other sums as
provided herein, in the 1998 Term Note or in the 1999 Term Note or with respect
to any Obligations relating to the ACH transactions.
Whenever any payment to be made to the Bank hereunder, under the 1998 Term
Note, under the 1999 Term Note and/or with respect to any Obligations relating
to ACH transactions shall be stated to be due on a day which is not a Business
Day, such payment may be made on the next succeeding Business Day, and interest
payable on each such date shall include the amount thereof which shall accrue
during the period of such extension of time. All payments by the Borrower
hereunder and/or in respect of the 1998 Term Note or the 1999 Term Note and/or
with respect to any Obligations relating to ACH transactions shall be made net
of any impositions or taxes and without deduction, set-off or counterclaim,
notwithstanding any claim which the Borrower may now or at any time hereafter
have against the Bank. All payments of interest, principal and any other sum
payable hereunder, under the 1998 Term Note and/or the 1999 Term Note and/or
with respect to any Obligations relating to ACH transactions shall be made to
the Bank, in lawful money of the United States in immediately available funds,
at its office at One Federal Street, Boston, MA 02110 or to such other address
as the Bank may from time to time direct. All payments received by the Bank
after 2:00 p.m. on any day shall be deemed received as of the next succeeding
Business Day. All monies received by the Bank hereunder shall (unless an Event
of Default has occurred and is then continuing) be applied as designated in
writing by the Borrower at the time of such payment and, failing such
designation (or if an Event of Default has occurred and is then continuing),
shall be applied first to fees, charges, costs and expenses payable to the Bank
under this letter agreement, any Term Note and/or any of the other Loan
Documents and/or with respect to any of the other Obligations, next to interest
then accrued on account of any Term Loans or other Obligations and only
thereafter to principal of the Term Loans and the other Obligations. All
interest and fees payable hereunder and/or under any Term Note and/or with
respect to any of the other Obligations shall be calculated on the basis of a
360-day year for the actual number of days elapsed.
1.6. ACH Exposure. The Bank may from time to time, at the request of the
------------
Borrower, initiate automated clearinghouse ("ACH") transactions for the
Borrower; provided that the Bank's total ACH Exposure shall not (unless
otherwise agreed by the Bank in its sole discretion) exceed $200,000 at any one
time. ACH transactions will bear such fees and charges as may be agreed upon by
the Bank and the Borrower and will be governed by documentation to be entered
into between the Bank and the Borrower in connection therewith. As used herein,
"ACH
-4-
<PAGE>
Exposure" as determined at any date means the sum of (i) all amounts then owed
by the Borrower to the Bank in connection with any ACH transaction pursuant to
which the Bank has advanced funds on behalf of the Borrower plus (ii) the
----
maximum amount which could be owed by the Borrower (assuming settlement within
two (2) Business Days of each date when funds are advanced) to the Bank in
connection with all ACH transactions then authorized by the Borrower.
1.7. Conditions to Advance. Prior to the making of the initial 1999-2000
---------------------
Term Loan or the initiation of any ACH transaction, the Borrower shall deliver
to the Bank duly executed copies of this letter agreement, the Security
Agreement, the 1999 Term Note and the documents and other items listed on the
Closing Agenda delivered herewith by the Bank to the Borrower, all of which, as
well as all legal matters incident to the transactions contemplated hereby,
shall be satisfactory in form and substance to the Bank and its counsel.
Without limiting the foregoing, any 1999-2000 Term Loan (including the
initial 1999-2000 Term Loan) and the initiation of any ACH transaction is
subject to the further conditions precedent that on the date on which such 1999-
2000 Term Loan is made or such ACH transaction is initiated (and, in either
event, after giving effect thereto):
(a) All statements, representations and warranties of the Borrower made in
this letter agreement and/or in the Security Agreement shall continue to be
correct in all material respects as of the date of such 1999-2000 Term Loan or
such ACH transaction, as the case may be (except for such statements,
representations and warranties that expressly relate to a specific date).
(b) All covenants and agreements of the Borrower contained herein and/or
in any of the other Loan Documents shall have been complied with in all material
respects on and as of the date of such 1999-2000 Term Loan or such ACH
transaction, as the case may be.
(c) No event which constitutes, or which with notice or lapse of time or
both would constitute, an Event of Default shall have occurred and be
continuing.
(d) No material adverse change shall have occurred in the financial
condition of the Borrower from that disclosed in the financial statements then
most recently furnished to the Bank.
Each request by the Borrower for any 1999-2000 Term Loan or any ACH
transaction, and each acceptance by the Borrower of the proceeds of any 1999-
2000 Term Loan, will be deemed a representation and warranty by the Borrower
that at the date of such 1999-2000 Term Loan (or such ACH transaction, as the
case may be) and after giving effect thereto all of the conditions set forth in
the foregoing clauses (a)-(d) of this (S)1.7 will be satisfied.
II. REPRESENTATIONS AND WARRANTIES
------------------------------
2.1. Representations and Warranties. In order to induce the Bank to enter
------------------------------
into this letter agreement and to make Term Loans hereunder and/or engage in ACH
transactions for the Borrower, the Borrower warrants and represents to the Bank
as follows:
-5-
<PAGE>
(a) The Borrower is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. The Borrower has full
corporate power to own its property and conduct its business as now conducted
and as proposed to be conducted, to grant the security interests contemplated by
the Security Agreement and to enter into and perform this letter agreement and
the other Loan Documents. The Borrower is duly qualified to do business and in
good standing in Massachusetts and in each other jurisdiction in which the
Borrower maintains any plant, office, warehouse or other facility and in each
other jurisdiction where the failure so to qualify would be reasonably likely
(singly or in the aggregate with all other such failures) to have a material
adverse effect on the financial condition, business or prospects of the
Borrower, all such jurisdictions being listed on item 2.1(a) of the attached
Disclosure Schedule. At the date hereof, the Borrower has no Subsidiaries,
except as shown on said item 2.1(a) of the attached Disclosure Schedule. The
Borrower is not a member of any partnership or joint venture.
(b) At the date of this letter agreement, all of the outstanding equity
securities of the Borrower are owned, of record and beneficially, as set forth
on item 2.1(b) of the attached Disclosure Schedule. The Borrower owns 100% of
the outstanding capital stock of each Subsidiary, if any.
(c) The execution, delivery and performance by the Borrower of this letter
agreement and each of the other Loan Documents have been duly authorized by all
necessary corporate and other action and do not and will not:
(i) violate any provision of, or require any filing (other than
filings under the Uniform Commercial Code), registration, consent or
approval under, any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to the Borrower;
(ii) violate any provision of the charter or by-laws of the Borrower,
or result in a breach of or constitute a default or require any waiver or
consent under any indenture or loan or credit agreement or any other
material agreement, lease or instrument to which the Borrower is a party or
by which the Borrower or any of its properties may be bound or affected or
require any other consent of any Person; or
(iii) result in, or require, the creation or imposition of any lien,
security interest or other encumbrance (other than in favor of the Bank),
upon or with respect to any of the properties now owned or hereafter
acquired by the Borrower.
(d) This letter agreement and each of the other Loan Documents has been
duly executed and delivered by the Borrower and each is a legal, valid and
binding obligation of the Borrower, enforceable against the Borrower in
accordance with its respective terms.
(e) Except as described on item 2.1(e) of the attached Disclosure
Schedule, there are no actions, suits, proceedings or investigations pending or,
to the knowledge of the Borrower, threatened by or against the Borrower or any
Subsidiary of the Borrower before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or
-6-
<PAGE>
foreign, which could hinder or prevent the consummation of the transactions
contemplated hereby or call into question the validity of this letter agreement
or any of the other Loan Documents or any other instrument provided for or
contemplated by this letter agreement or any action taken or to be taken in
connection with the transactions contemplated hereby or thereby or which in any
single case or in the aggregate would be reasonably likely to result in any
material adverse change in the business, prospects, condition, affairs or
operations of the Borrower or any such Subsidiary.
(f) The Borrower is not in violation of any term of its charter or by-laws
as now in effect. Neither the Borrower nor any Subsidiary of the Borrower is in
material violation of any term of any mortgage, indenture or judgment, decree or
order, or any other instrument, contract or agreement to which it is a party or
by which any of its property is bound, which violation would be reasonably
likely to have a material adverse effect on the financial condition, business or
prospects of the Borrower.
(g) The Borrower has filed (and has caused each of its Subsidiaries to
file) all federal, foreign, state and local tax returns, reports and estimates
required to be filed by the Borrower and/or by any such Subsidiary. All such
filed returns, reports and estimates are proper and accurate and the Borrower or
the relevant Subsidiary has paid all taxes, assessments, impositions, fees and
other governmental charges required to be paid in respect of the periods covered
by such returns, reports or estimates, other than any such taxes, assessments,
impositions, fees and charges which are being contested in good faith by
appropriate proceedings which serve to stay the remedies of the relevant taxing
authority and as to which the Borrower has established and maintains adequate
reserves. No deficiencies for any tax, assessment or governmental charge have
been asserted or assessed, and the Borrower knows of no material tax liability
nor any basis therefor.
(h) The Borrower is in compliance with (and each Subsidiary of the
Borrower is in compliance with) all requirements of law, federal, foreign, state
and local, and all requirements of all governmental bodies or agencies having
jurisdiction over it, the conduct of its business, the use of its properties and
assets, and all premises occupied by it, failure to comply with any of which
would be reasonably likely (singly or in the aggregate with all other such
failures) to have a material adverse effect upon the assets, business, financial
condition or prospects of the Borrower or any such Subsidiary. Without limiting
the foregoing, the Borrower has all of the material franchises, licenses,
leases, permits, certificates and authorizations needed for the conduct of its
business and the use of its properties and all premises occupied by it, as now
conducted, owned and used.
(i) The management-prepared financial statements of the Borrower as at
December 31, 1998, heretofore delivered to the Bank, are complete and accurate
and fairly present the financial condition of the Borrower as at the date
thereof and for the period covered thereby, except that said management-prepared
statements do not have footnotes and thus do not present all of the information
which would normally be contained in footnotes to financial statements. Neither
the Borrower nor any of the Borrower's Subsidiaries has any liability,
contingent or otherwise, not disclosed in the aforesaid December 31, 1998
financial statements or in any notes thereto that would be reasonably likely to
materially adversely affect the financial
-7-
<PAGE>
condition of the Borrower. Since December 31, 1998, there has been no material
adverse development in the business, condition or prospects of the Borrower, and
the Borrower has not entered into any material transaction other than in the
ordinary course.
(j) The principal place of business and chief executive offices of the
Borrower are located at 10 Elizabeth Drive, Chelmsford, MA 01824. All of the
books and records of the Borrower are located at said address. Except as
described on item 2.1(j) of the attached Disclosure Schedule, none of the assets
of the Borrower are located at any address other than at 10 Elizabeth Drive,
Chelmsford, MA 01824; provided that laptop computers, personal computers and
demonstration and testing equipment with an aggregate value not in excess of
$200,000 may be kept at other locations, subject to the following conditions and
limitations: (i) laptop computers and personal computers may be removed from
said Chelmsford, MA premises so long as same are kept by the Borrower's salesmen
and/or employees, and (ii) demonstration and testing equipment may be removed
from said Chelmsford, MA premises and kept at customers' premises and/or trade
shows so long as, as to each item of such demonstration and testing equipment
which has been removed from the Borrower's Chelmsford, MA premises for 90 days
or more, on or prior to such 90th day the Borrower informs the Bank in writing
of the location of such item and delivers to the Bank all such Uniform
Commercial Code financing statements, consignment agreements, waivers and other
documentation as the Bank may reasonably request in order to establish and/or
maintain perfection of its security interests. Said Item 2.1(j) of the attached
Disclosure Schedule sets forth the names and addresses of all record owners of
any premises where Collateral may be located, except Collateral located off-site
pursuant to the immediately preceding sentence.
(k) The Borrower owns or has a valid right to use all of the material
patents, licenses, copyrights, trademarks, trade names and franchises now being
used or necessary to conduct its business as presently conducted. The conduct
of the Borrower's business as now operated does not conflict with valid patents,
licenses, copyrights, trademarks, trade names or franchises of others in any
manner that would be reasonably likely to materially adversely affect the
business or assets or condition, financial or otherwise, of the Borrower.
(l) Except as described on item 2.1(l) of the attached Disclosure
Schedule, none of the executive officers or key employees of the Borrower is
subject to any agreement in favor of anyone other than the Borrower which limits
or restricts that person's right to engage in the type of business activity
conducted by the Borrower or which grants to anyone other than the Borrower any
rights in any inventions or other ideas susceptible to legal protection
developed or conceived by any such officer or key employee.
(m) The Borrower is not a party to any contract or agreement which now has
or, as far as can be foreseen by the Borrower at the date hereof, is reasonably
likely to have a material adverse effect on the financial condition, business,
prospects or properties of the Borrower.
(n) The Borrower has reviewed the material software which it uses in its
business for "Year 2000" compliance and has determined that such software will
continue to function in the manner intended without interruption of service or
other difficulty resulting from the "Year 2000
-8-
<PAGE>
problem". The Borrower will, at the request of the Bank, provide such reports
and such other information as the Bank may reasonably request in order to
evidence such Year 2000 compliance.
III. AFFIRMATIVE COVENANTS AND REPORTING REQUIREMENTS
------------------------------------------------
Without limitation of any other covenants and agreements contained herein
or elsewhere, the Borrower agrees that so long as the financing arrangements
contemplated hereby are in effect or all or any portion of any Term Loan or any
of the other Obligations shall be outstanding or any amount shall be owed by the
Borrower in respect of any ACH transaction:
3.1. Legal Existence; Qualification; Compliance. The Borrower will
------------------------------------------
maintain (and will cause each Subsidiary of the Borrower to maintain) its
corporate existence and good standing in the jurisdiction of its incorporation.
The Borrower will remain qualified to do business and in good standing in
Massachusetts. The Borrower will qualify to do business and will remain
qualified and in good standing (and the Borrower will cause each Subsidiary of
the Borrower to qualify and remain qualified and in good standing) in each other
jurisdiction where the Borrower or such Subsidiary, as the case may be,
maintains any plant, office, warehouse or other facility and in each other
jurisdiction where the failure so to qualify would be reasonably likely (singly
or in the aggregate with all other such failures) to have a material adverse
effect on the financial condition, business or prospects of the Borrower or any
such Subsidiary. The Borrower will comply (and will cause each Subsidiary of
the Borrower to comply) with its charter documents and by-laws. The Borrower
will comply with (and will cause each Subsidiary of the Borrower to comply with)
all applicable laws, rules and regulations (including, without limitation, ERISA
and those relating to environmental protection) other than (i) laws, rules or
regulations the validity or applicability of which the Borrower or such
Subsidiary shall be contesting in good faith by proceedings which serve as a
matter of law to stay the enforcement thereof and (ii) those laws, rules and
regulations the failure to comply with any of which would not (singly or in the
aggregate) be reasonably likely to have a material adverse effect on the
financial condition, business or prospects of the Borrower or any such
Subsidiary.
3.2. Maintenance of Property; Insurance. The Borrower will maintain and
----------------------------------
preserve (and will cause each Subsidiary of the Borrower to maintain and
preserve) all of its fixed assets in good working order and condition, making
all necessary repairs thereto and replacements thereof. The Borrower will
maintain all such insurance as may be required under the Security Agreement and
will also maintain, with financially sound and reputable insurers, insurance
with respect to its property and business against such liabilities, casualties
and contingencies and of such types and in such amounts as shall be reasonably
satisfactory to the Bank from time to time and in any event all such insurance
as may from time to time be customary for companies conducting a business
similar to that of the Borrower in similar locales.
3.3. Payment of Taxes and Charges. The Borrower will pay and discharge
----------------------------
(and will cause each Subsidiary of the Borrower to pay and discharge) all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or property, including, without limitation, taxes, assessments, charges
or levies relating to real and personal property, franchises, income,
unemployment, old age benefits, withholding, or sales or use, prior to the date
-9-
<PAGE>
on which penalties would attach thereto, and all lawful claims (whether for any
of the foregoing or otherwise) which, if unpaid, might give rise to a lien upon
any property of the Borrower or any such Subsidiary, except any of the foregoing
which is being contested in good faith and by appropriate proceedings which
serve as a matter of law to stay the enforcement thereof and for which the
Borrower has established and is maintaining adequate reserves. The Borrower will
pay, and will cause each of its Subsidiaries to pay, in a timely manner, all
material lease obligations, material trade debt, material purchase money
obligations, material equipment lease obligations and all of its other material
Indebtedness. The Borrower will perform and fulfill all material covenants and
agreements under any material leases of real estate, agreements relating to
material purchase money debt, material equipment leases and other material
contracts. The Borrower will maintain in full force and effect, and comply with
the terms and conditions of, all material permits, permissions and licenses
necessary or desirable for its business.
3.4. Accounts. The Borrower will maintain its primary operating accounts
--------
with the Bank.
3.5. Conduct of Business. The Borrower will conduct, in the ordinary
-------------------
course, the business in which it is presently engaged. The Borrower will not,
without the prior written consent of the Bank, directly or indirectly (itself or
through any Subsidiary) enter into any other lines of business, businesses or
ventures which are not substantially related to the business conducted by the
Borrower at the date of this letter agreement. If the Borrower requests such
consent in writing, the Bank will, within 10 Business Days after receipt of such
request (together with all such projections, historical financial information
and other data as may be reasonably necessary for the Bank to make its
decision), inform the Borrower as to whether such consent will or will not be
given; and the failure by the Bank to respond within such 10-Business Day period
will be deemed to constitute a refusal to give such consent.
3.6. Reporting Requirements. The Borrower will furnish to the Bank (or
----------------------
cause to be furnished to the Bank):
(i) Within 120 days after the end of each fiscal year of the
Borrower, a copy of the annual audit report for such fiscal year for the
Borrower, including therein consolidated and consolidating balance sheets
of the Borrower and Subsidiaries as at the end of such fiscal year and
related consolidated and consolidating statements of income, stockholders'
equity and cash flow for the fiscal year then ended. The annual
consolidated financial statements shall be certified by independent public
accountants selected by the Borrower and reasonably acceptable to the Bank,
such certification to be in such form as is generally recognized as
"unqualified".
(ii) Within 30 days after the end of each month, consolidated and
consolidating balance sheets of the Borrower and Subsidiaries and related
consolidated and consolidating statements of income and cash flow,
unaudited but complete and accurate and prepared in accordance with
generally accepted accounting principles consistently applied fairly
presenting the financial condition of the Borrower and Subsidiaries as at
the dates thereof and for the periods covered thereby (except that such
monthly statements
-10-
<PAGE>
need not contain footnotes) and certified as accurate by the chief
financial officer or chief executive officer of the Borrower, such balance
sheets to be as at the end of each such month and such statements of income
and cash flow to be for each such month and for the fiscal year to date, in
each case together with a comparison to budget and a comparison to the
results for the corresponding fiscal period of the immediately prior fiscal
year.
(iii) At the time of delivery of each annual or monthly financial
statement of the Borrower, a certificate executed by the chief financial
officer or chief executive officer of the Borrower stating that he or she
has reviewed this letter agreement and the other Loan Documents and has no
knowledge of any default by the Borrower in the performance or observance
of any of the provisions of this letter agreement or of any of the other
Loan Documents or, if he or she has such knowledge, specifying each such
default and the nature thereof. Each financial statement given as at the
end of any fiscal quarter of the Borrower will also set forth the
calculations necessary to evidence compliance with (S)(S)3.7 - 3.9.
(iv) Promptly after receipt, a copy of all audits or reports
submitted to the Borrower by independent public accountants in connection
with any annual, special or interim audits of the books of the Borrower and
any "management letter" prepared by such accountants.
(v) As soon as possible and in any event within five days after the
Borrower knows of or reasonably should have known of the occurrence of any
Default or Event of Default, the statement of the Borrower setting forth
details of each such Default or Event of Default and the action which the
Borrower proposes to take with respect thereto.
(vi) Promptly after the commencement thereof, notice of the
commencement of all actions, suits and proceedings before any court or
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, to which the Borrower or any
Subsidiary of the Borrower is a party; provided, however, that nothing
contained in this clause (vi) will be deemed to require the Borrower to
give notice of any such action, suit or proceeding which seeks monetary
damages only, such damages being in the amount of $100,000 or less.
(vii) Promptly upon filing any registration statement or listing
application, a copy of same.
(viii) If the Borrower at any time has a class of securities which is
publicly traded, a copy of each periodic or current report of the Borrower
filed with the SEC or any successor agency and each annual report, proxy
statement and other communication sent by the Borrower to shareholders or
other securityholders generally or disseminated to the public, such copy to
be provided to the Bank promptly upon such filing with the SEC or such
communication with shareholders or securityholders or such public
dissemination, as the case may be.
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<PAGE>
(ix) Promptly after the Borrower has knowledge thereof, written
notice of any development or circumstance which would be reasonably
expected to have a material adverse effect on the Borrower or its business,
prospects, properties, assets, Subsidiaries or condition, financial or
otherwise.
(x) Promptly upon request, such other information (including
budgets) respecting the financial condition, operations, prospects,
receivables, inventory, machinery or equipment of the Borrower or any
Subsidiary as the Bank may from time to time reasonably request.
3.7. Quick Ratio. The Borrower will maintain, as at each Determination
-----------
Date (commencing with its results as at April 30, 1999), a Quick Ratio of not
less than 2.0 to 1. As used herein, the "Quick Ratio", as determined at any
date, is the ratio of (x) Net Quick Assets to (y) Current Liabilities then
outstanding. As used herein, "Determination Date" means the last day of each
fiscal quarter of the Borrower.
3.8. Capital Base. The Borrower will maintain as at each Determination
------------
Date (commencing with its results as at April 30, 1999) a consolidated Capital
Base which shall not be less than $25,000,000.
3.9. Leverage. The Borrower will maintain, on a consolidated basis, as at
--------
each Determination Date (commencing with its results as at April 30, 1999) a
Leverage Ratio which shall not be more than 1.0 to 1. As used herein, the
"Leverage Ratio", as determined at any date, means the ratio of (x) all Senior
Debt of the Borrower and/or any of its Subsidiaries outstanding at such date to
(y) the Borrower's consolidated Capital Base at such date.
3.10. Books and Records. The Borrower will maintain (and will cause each
-----------------
of its Subsidiaries to maintain) complete and accurate books, records and
accounts which will at all times accurately and fairly reflect all of its
transactions in accordance with generally accepted accounting principles
consistently applied. The Borrower will, at any reasonable time and from time
to time upon reasonable notice and during normal business hours (and at any time
and without any necessity for notice following the occurrence of an Event of
Default), permit the Bank, and any agents or representatives thereof, to examine
and make copies of and take abstracts from the records and books of account of,
and visit the properties of the Borrower and any of its Subsidiaries, and to
discuss its affairs, finances and accounts with its officers, directors and/or
independent accountants, all of whom are hereby authorized and directed to
cooperate with the Bank in carrying out the intent of this (S)3.10; provided
that the Borrower will not be required to pay the costs of more than one
inspection under this (S)3.10 per calendar year unless an Event of Default has
occurred and is continuing. Each financial statement of the Borrower hereafter
delivered pursuant to this letter agreement will be complete and accurate and
will fairly present in all material respects the financial condition of the
Borrower as at the date thereof and for the periods covered thereby.
3.11. Landlord's Waiver. Prior to the making of the first 1999-2000 Term
-----------------
Loan, the Borrower will use its best efforts to obtain, and will thereafter use
its best efforts to maintain in
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<PAGE>
effect at all times, waivers from the owners of all premises in which any
Collateral is permanently located, such waivers to be in form and substance
reasonably satisfactory to the Bank.
IV. NEGATIVE COVENANTS
------------------
Without limitation of any other covenants and agreements contained herein
or elsewhere, the Borrower agrees that so long as the financing arrangements
contemplated hereby are in effect or all or any portion of any Term Loan or any
of the other Obligations shall be outstanding or any amount shall be owed by the
Borrower in respect of any ACH transaction:
4.1. Indebtedness. The Borrower will not create, incur, assume or suffer
------------
to exist any Indebtedness (nor allow any of its Subsidiaries to create, incur,
assume or suffer to exist any Indebtedness), except for:
(i) Indebtedness owed to the Bank, including, without limitation,
the Indebtedness represented by the Term Notes or in respect of any ACH
transaction;
(ii) Indebtedness of the Borrower or any Subsidiary for taxes,
assessments and governmental charges or levies not yet due and payable;
(iii) unsecured current liabilities of the Borrower or any Subsidiary
(other than for money borrowed or for purchase money Indebtedness with
respect to fixed assets) incurred upon customary terms in the ordinary
course of business;
(iv) purchase money Indebtedness (including, without limitation,
Indebtedness in respect of capitalized equipment leases including any
embedded software) incurred after the date hereof to equipment vendors
and/or lessors for equipment purchased or leased by the Borrower for use in
the Borrower's business, provided that the total of Indebtedness permitted
under this clause (iv) plus presently-existing equipment financing
permitted under clause (v) of this (S)4.1 will not exceed $100,000 in the
aggregate outstanding at any one time;
(v) other Indebtedness existing at the date hereof, but only to the
extent set forth on item 4.1 of the attached Disclosure Schedule; and
(vi) any guaranties or other contingent liabilities expressly
permitted pursuant to (S)4.3.
4.2. Liens. The Borrower will not create, incur, assume or suffer to exist
-----
(nor allow any of its Subsidiaries to create, incur, assume or suffer to exist)
any mortgage, deed of trust, pledge, lien, security interest, or other charge or
encumbrance (including the lien or retained security title of a conditional
vendor) of any nature (collectively, "Liens"), upon or with respect to any of
its property or assets, now owned or hereafter acquired (including, without
limitation, any trustee process affecting any accounts of the Borrower
maintained at the Bank), except that the foregoing restrictions shall not apply
to:
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<PAGE>
(i) Liens for taxes, assessments or governmental charges or levies
on property of the Borrower or any of its Subsidiaries if the same shall
not at the time be delinquent or thereafter can be paid without interest or
penalty or are being contested in good faith and by appropriate proceedings
which serve as a matter of law to stay the enforcement thereof and as to
which adequate reserves are maintained;
(ii) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar Liens arising in the ordinary course of
business for sums not yet due or which are being contested in good faith
and by appropriate proceedings which serve as a matter of law to stay the
enforcement thereof and as to which adequate reserves are maintained;
(iii) pledges or deposits under workmen's compensation laws,
unemployment insurance, social security, retirement benefits or similar
legislation;
(iv) Liens in favor of the Bank;
(v) Liens in favor of equipment vendors and/or lessors securing
purchase money Indebtedness to the extent permitted by clause (iv) of
(S)4.1; provided that no such Lien will extend to any property of the
Borrower other than the specific items of equipment financed;
(vi) other Liens existing at the date hereof, but only to the extent
and with the relative priorities set forth on item 4.2 of the attached
Disclosure Schedule; or
(vii) involuntary attachments (not including any trustee process
affecting an account maintained by the Borrower with the Bank) arising
without the consent or acquiescence of the Borrower relating to
Indebtedness not in excess of $100,000 which are discharged or bonded off
within 30 days of the date of attachment.
Without limitation of the foregoing, the Borrower agrees that the Borrower
will not enter into any agreement (a "Restrictive Agreement") which would have
the effect of prohibiting the Borrower from granting to the Bank in the future a
Lien on the Borrower's trademarks, patents, copyrights and other intellectual
property. The Borrower represents that it is not now a party to any such
Restrictive Agreement.
4.3. Guaranties. The Borrower will not, without the prior written consent
----------
of the Bank, assume, guarantee, endorse or otherwise become directly or
contingently liable (including, without limitation, liable by way of agreement,
contingent or otherwise, to purchase, to provide funds for payment, to supply
funds to or otherwise invest in any debtor or otherwise to assure any creditor
against loss) (and will not permit any of its Subsidiaries so to assume,
guaranty or become directly or contingently liable) in connection with any
indebtedness of any other Person, except (i) guaranties by endorsement for
deposit or collection in the ordinary course of business,
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<PAGE>
and (ii) guaranties existing at the date hereof and described on item 4.3 of the
attached Disclosure Schedule.
4.4. Dividends. The Borrower will not, without the prior written consent
---------
of the Bank, make any distributions to its shareholders, pay any dividends
(other than dividends payable solely in capital stock of the Borrower) or
redeem, purchase or otherwise acquire, directly or indirectly any of its capital
stock; provided that the Borrower may repurchase from employees, officers and
consultants and former employees, officers and consultants stock issued under
its restricted stock plans and stock option plans, so long as at the time of
each such repurchase and after giving effect thereto there shall be no Default
or Event of Default (with compliance with each of (S)(S)3.7, 3.8 and 3.9 being
determined for this purpose both as at the then most recent fiscal quarter-end
and as at the date of such proposed repurchase).
4.5. Loans and Advances. The Borrower will not make (and will not permit
------------------
any Subsidiary to make) any loans or advances to any Person, including, without
limitation, the Borrower's directors, officers and employees, except advances to
such directors, officers or employees with respect to expenses incurred by them
in the ordinary course of their duties and advances against salesmen's
commissions and employees' salaries, all of which loans and advances will not
exceed, in the aggregate, $250,000 outstanding at any one time.
4.6. Investments. The Borrower will not, without the Bank's prior written
-----------
consent (such consent not to be unreasonably withheld or delayed), invest in,
hold or purchase any stock or securities of any Person (nor will the Borrower
permit any of its Subsidiaries to invest in, purchase or hold any such stock or
securities) except: (i) readily marketable direct obligations of, or
obligations guarantied by, the United States of America or any agency thereof;
(ii) other investment grade debt securities; (iii) mutual funds, the assets of
which are primarily invested in items of the kind described in the foregoing
clauses (i) and (ii) of this (S)4.6; (iv) deposits with or certificates of
deposit issued by the Bank and any other obligations of the Bank or the Bank's
parent; (v) deposits with or certificates of deposits issued by any other bank
organized in the United States having capital in excess of $100,000,000; and
(vi) investments in any Subsidiaries now existing or hereafter created by the
Borrower pursuant to (S)4.7 below; provided that in any event the Tangible Net
Worth of the Borrower alone (exclusive of its investment in Subsidiaries and any
debt owed by any Subsidiary to the Borrower) will not be less than 90% of the
consolidated Tangible Net Worth of the Borrower and Subsidiaries.
4.7. Subsidiaries; Acquisitions. The Borrower will not, without the prior
--------------------------
written consent of the Bank, acquire any Subsidiary or make any other
acquisition of all or substantially all of the stock of any other Person or of
all or substantially all of the assets of any other Person. The Borrower will
notify the Bank promptly if it forms any Subsidiary. The Borrower will not
become a partner in any partnership.
4.8. Merger. The Borrower will not, without the prior written consent of
------
the Bank, merge or consolidate with any Person, or sell, lease, transfer or
otherwise dispose of any material portion of its assets (whether in one or more
transactions), other than sale of inventory in the ordinary course. The Bank
agrees that it will not unreasonably withhold its consent to any merger
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<PAGE>
transaction pursuant to which the Term Loans and the ACH obligations will be
paid in full at the date of consummation of such merger and the Bank's
obligations in respect of Term Loans and ACH transactions will be terminated.
4.9. Affiliate Transactions. The Borrower will not, without the prior
----------------------
written consent of the Bank (which consent shall not be unreasonably withheld or
delayed), enter into any transaction, including, without limitation, the
purchase, sale or exchange of any property or the rendering of any service, with
any affiliate of the Borrower, except in the ordinary course of and pursuant to
the reasonable requirements of the Borrower's business and upon fair and
reasonable terms no less favorable to the Borrower than would be obtained in a
comparable arms'-length transaction with any Person not an affiliate; provided
that nothing in this (S)4.9 shall be deemed to restrict the payment of salary or
other similar payments to any officer or director of the Borrower at a level
consistent with the salary and other payments being paid at the date of this
letter agreement, nor to prevent the hiring of additional officers at a level of
salary and other compensation consistent with industry practice, nor to prevent
reasonable periodic increases in salary. For the purposes of this letter
agreement, "affiliate" means any Person which, directly or indirectly, controls
or is controlled by or is under common control with the Borrower; any officer or
director or former officer or director of the Borrower; any Person owning of
record or beneficially, directly or indirectly, 5% or more of any class of
capital stock of the Borrower or 5% or more of any class of capital stock or
other equity interest having voting power (under ordinary circumstances) of any
of the other Persons described above; and any member of the immediate family of
any of the foregoing. "Control" means possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of any
Person, whether through ownership of voting equity, by contract or otherwise.
Notwithstanding the foregoing, nothing contained in this (S)4.9 will be deemed
to prohibit any issuance of equity securities of the Borrower, whether or not to
any affiliate of the Borrower.
4.10. Change of Address, etc. The Borrower will not change its corporate
-----------------------
name or legal structure, nor will the Borrower change its chief executive
offices or principal place of business from the address described in (S)2.1(j),
nor will the Borrower remove any books or records from such address, nor will
the Borrower keep any Collateral at any location other than the premises
referred to in said (S)2.1(j) without, in each instance, giving the Bank at
least 30 days' prior written notice and providing all such financing statements,
certificates and other documentation as the Bank may reasonably request in order
to maintain the perfection and priority of the security interests granted or
intended to be granted pursuant to the Security Agreement; provided that laptop
computers and personal computers may be kept at other locations for the use of
salesmen and other employees of the Borrower and demonstration and testing
equipment may be kept off-site at customers' premises and trade shows (all such
laptop computers, personal computers and demonstration and testing equipment to
have an aggregate value not in excess of $200,000), subject to the condition
that, as to each item of testing or demonstration equipment which is away from
the Borrower's Chelmsford, MA premises for 90 days or more, on or prior to such
90th day the Borrower informs the Bank in writing of the location of such item
and delivers to the Bank all such Uniform Commercial Code financing statements,
consignment agreements, waivers and other documentation as the Bank may
reasonably request in order to establish and/or maintain perfection of its
security interests. The Borrower will not change its fiscal year or methods of
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<PAGE>
financial reporting unless, in each instance, prior written notice of such
change is given to the Bank and prior to such change the Borrower enters into
amendments to this letter agreement in form and substance reasonably
satisfactory to the Bank in order to preserve unimpaired the rights of the Bank
and the obligations of the Borrower hereunder.
4.11. Hazardous Waste. Except as provided below, the Borrower will not
---------------
dispose of or suffer or permit to exist any hazardous material or oil on any
site or vessel owned, occupied or operated by the Borrower or any Subsidiary of
the Borrower, nor shall the Borrower store (or permit any Subsidiary to store)
on any site or vessel owned, occupied or operated by the Borrower or any such
Subsidiary, or transport or arrange the transport of, any hazardous material or
oil (the terms "hazardous material", "oil", "site" and "vessel", respectively,
being used herein with the meanings given those terms in Mass. Gen. Laws, Ch.
21E or any comparable terms in any comparable statute in effect in any other
relevant jurisdiction). The Borrower shall provide the Bank with written notice
of (i) the intended storage or transport of any hazardous material or oil by the
Borrower or any Subsidiary of the Borrower, (ii) any potential or known release
or threat of release of any hazardous material or oil at or from any site or
vessel owned, occupied or operated by the Borrower or any Subsidiary of the
Borrower, and (iii) any incurrence of any expense or loss by any government or
governmental authority in connection with the assessment, containment or removal
of any hazardous material or oil for which expense or loss the Borrower or any
Subsidiary of the Borrower may be liable. Notwithstanding the foregoing, the
Borrower and its Subsidiaries may use, store and transport, and need not notify
the Bank of the use, storage or transportation of, (x) oil and other combustible
materials in reasonable quantities, as fuel for heating of their respective
facilities or for vehicles or machinery used in the ordinary course of their
respective businesses and (y) hazardous materials that are solvents, cleaning
agents or other materials used in the ordinary course of the respective business
operations of the Borrower and its Subsidiaries, in reasonable quantities, as
long as in any case the Borrower or the Subsidiary concerned (as the case may
be) has obtained and maintains in effect any necessary governmental permits,
licenses and approvals, complies with all requirements of applicable federal,
state and local law relating to such use, storage or transportation, follows the
protective and safety procedures that a prudent businessperson conducting a
business the same as or similar to that of the Borrower or such Subsidiary (as
the case may be) would follow, and disposes of any hazardous wastes (not
consumed in the ordinary course) only through licensed providers of hazardous
waste removal services.
4.12. No Margin Stock. No proceeds of any Term Loan shall be used
---------------
directly or indirectly to purchase or carry any margin security.
4.13. Subordinated Debt. The Borrower will not directly or indirectly
-----------------
make any optional or voluntary prepayment or purchase of Subordinated Debt or
modify, alter or add any provisions with respect to payment of Subordinated Debt
without the prior written consent of the Bank (the Bank agreeing that it will
not unreasonably withhold or delay its consent to any modification or amendment
of Subordinated Debt documentation which does not affect the subordination
provisions). In any event, the Borrower will not make any payment of any
principal of or interest on any Subordinated Debt at any time when there exists,
or if there would result therefrom, any Default or Event of Default hereunder.
-17-
<PAGE>
V. DEFAULT AND REMEDIES
--------------------
5.1. Events of Default. The occurrence of any one of the following events
-----------------
shall constitute an Event of Default hereunder:
(a) The Borrower shall fail to make any payment of principal of or
interest on any Term Note or with respect to any ACH transaction on or before
the date when due; or
(b) Any representation or warranty of the Borrower contained herein shall
at any time prove to have been incorrect in any material respect when made or
any representation or warranty made by the Borrower in connection with any Term
Loan or with respect to any ACH transaction shall at any time prove to have been
incorrect in any material respect when made; or
(c) The Borrower shall default in the performance or observance of any
agreement or obligation under any of (S)(S)3.1, 3.3, 3.6, 3.7, 3.8 or 3.9 or any
provision of Article IV; or
(d) The Borrower shall default in the performance of any other term,
covenant or agreement contained in this letter agreement and such default shall
continue unremedied for 30 days after written notice thereof shall have been
given to the Borrower; or
(e) Any default on the part of the Borrower or any Subsidiary of the
Borrower shall exist, and shall remain unwaived or uncured beyond the expiration
of any applicable notice and/or grace period, under any other contract,
agreement or undertaking now existing or hereafter entered into with or for the
benefit of the Bank (or any affiliate of the Bank); or
(f) Any default shall exist and remain unwaived or uncured with respect
to any Subordinated Debt of the Borrower or with respect to any instrument
evidencing, guaranteeing or otherwise relating to any such Subordinated Debt, or
any such Subordinated Debt shall not have been paid when due, whether by
acceleration or otherwise, or shall have been declared to be due and payable
prior to its stated maturity, or any event or circumstance shall occur which
permits, or with the lapse of time or the giving of notice or both would permit,
the acceleration of the maturity of any Subordinated Debt by the holder or
holders thereof; or
(g) Any default shall exist and remain unwaived or uncured with respect
to any other Indebtedness of the Borrower or any Subsidiary of the Borrower (for
borrowed money) in excess of $50,000 in aggregate principal amount or with
respect to any instrument evidencing, guaranteeing, securing or otherwise
relating to any such Indebtedness, or any such Indebtedness for borrowed money
in excess of $50,000 in aggregate principal amount shall not have been paid when
due, whether by acceleration or otherwise, or shall have been declared to be due
and payable prior to its stated maturity, or any event or circumstance shall
occur which permits, or with the lapse of time or the giving of notice or both
would permit, the acceleration of the maturity of any such Indebtedness by the
holder of holders thereof; or
-18-
<PAGE>
(h) The Borrower shall be dissolved, or the Borrower or any Subsidiary of
the Borrower shall become insolvent or bankrupt or shall cease paying its debts
as they mature or shall make an assignment for the benefit of creditors, or a
trustee, receiver or liquidator shall be appointed for the Borrower or any
Subsidiary of the Borrower or for a substantial part of the property of the
Borrower or any such Subsidiary, or bankruptcy, reorganization, arrangement,
insolvency or similar proceedings shall be instituted by or against the Borrower
or any such Subsidiary under the laws of any jurisdiction (except for an
involuntary proceeding filed against the Borrower or any Subsidiary of the
Borrower which is dismissed within 60 days following the institution thereof);
or
(i) Any execution or similar process relating to Indebtedness in excess of
$100,000 shall be issued or levied against any property of the Borrower or any
Subsidiary and such execution or similar process shall not be paid, stayed,
released, vacated or fully bonded within 30 days after its issue or levy; or
(j) Any uninsured judgment in excess of $100,000 shall be entered against
the Borrower or any Subsidiary of the Borrower by any court of competent
jurisdiction and same shall not have been paid in full or satisfied within 30
days after such judgment has become final upon the expiration of all applicable
appeal periods; or
(k) The Borrower or any Subsidiary of the Borrower shall fail to meet its
minimum funding requirements under ERISA with respect to any employee benefit
plan (or other class of benefit which the PBGC has elected to insure) or any
such plan shall be the subject of termination proceedings (whether voluntary or
involuntary) and there shall result from such termination proceedings a
liability of the Borrower or any Subsidiary of the Borrower to the PBGC which,
in each case, in the reasonable opinion of the Bank would be reasonably likely
to have a material adverse effect upon the financial condition of the Borrower
or any such Subsidiary; or
(l) The Security Agreement or any other Loan Document shall for any reason
(other than due to payment in full of all amounts secured or evidenced thereby
or due to discharge in writing by the Bank) not remain in full force and effect;
or
(m) The security interest and liens of the Bank in and on any of the
Collateral described in the Security Agreement shall for any reason (other than
written release by the Bank) not be fully perfected liens and security
interests; or
(n) If, at any time, more than 50% of any class of voting stock of the
Borrower shall be held, of record and/or beneficially, by any Person or by any
"group" (as defined in the Securities Exchange Act of 1934, as amended, and the
regulations thereunder) other than by one or more of the Persons listed on item
5.1(n) of the attached Disclosure Schedule or a group consisting of such
Persons; or
(o) If, for any reason, either or both of Gururaj Deshpande and/or Daniel
Smith ceases to be an executive officer of the Borrower actively involved in the
management of the Borrower, unless any such individual who ceases to be such an
executive officer is replaced, within 30 days
-19-
<PAGE>
of such cessation, by another equally qualified individual selected by the
Borrower's Board of Directors (and the provisions of this clause (o) will become
applicable in turn to each successive replacement executive officer).
5.2. Rights and Remedies on Default. Upon the occurrence of any Event of
------------------------------
Default, in addition to any other rights and remedies available to the Bank
hereunder or otherwise, the Bank may exercise any one or more of the following
rights and remedies (all of which shall be cumulative):
(a) Declare the entire unpaid principal amount of each Term Note then
outstanding, all interest accrued and unpaid thereon and all other amounts
payable under this letter agreement, and all other Indebtedness of the Borrower
to the Bank, to be forthwith due and payable, whereupon the same shall become
forthwith due and payable, without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived by the Borrower.
(b) Terminate the arrangements for 1999-2000 Term Loans provided for by
this letter agreement, as well as terminating the within-described facility for
ACH transactions.
(c) Exercise all rights and remedies hereunder, under the Security
Agreement, under each Term Note and under each and any other agreement with the
Bank; and exercise all other rights and remedies which the Bank may have under
applicable law.
5.3. Set-off. In addition to any rights now or hereafter granted under
-------
applicable law and not by way of limitation of any such rights, upon the
occurrence of any Event of Default, the Bank is hereby authorized at any time or
from time to time, without presentment, demand, protest or other notice of any
kind to the Borrower or to any other Person, all of which are hereby expressly
waived, to set off and to appropriate and apply any and all deposits and any
other Indebtedness at any time held or owing by the Bank or any affiliate
thereof to or for the credit or the account of the Borrower against and on
account of the obligations and liabilities of the Borrower to the Bank under
this letter agreement or otherwise, irrespective of whether or not the Bank
shall have made any demand hereunder and although said obligations, liabilities
or claims, or any of them, may then be contingent or unmatured and without
regard for the availability or adequacy of other collateral. As security for
the Obligations, the Borrower grants to the Bank a security interest with
respect to all its deposits and all securities or other property in the
possession of the Bank or any affiliate of the Bank from time to time, and, upon
the occurrence of any Event of Default, the Bank may exercise all rights and
remedies of a secured party under the Uniform Commercial Code. ANY AND ALL
RIGHTS TO REQUIRE THE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO
ANY OTHER COLLATERAL WHICH SECURES ANY OF THE OBLIGATIONS PRIOR TO THE EXERCISE
BY THE BANK OF ITS RIGHT OF SET-OFF UNDER THIS SECTION ARE HEREBY KNOWINGLY,
VOLUNTARILY AND IRREVOCABLY WAIVED.
5.4. Cash Collateralization. If the within-described facility for ACH
----------------------
transactions expires or is terminated by the Bank at any time, the Borrower will
forthwith deposit with the Bank, in cash, the amount of the then outstanding ACH
Exposure, which cash will be pledged to
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<PAGE>
the Bank to secure the Borrower's obligations with respect to ACH transactions.
The cash so pledged will (unless theretofore applied in payment of the ACH
obligations) be released to the Borrower pro tanto as the outstanding ACH
--- -----
obligations are reduced.
VI. MISCELLANEOUS
-------------
6.1. Costs and Expenses. The Borrower agrees to pay, on demand, all
------------------
reasonable costs and expenses (including, without limitation, reasonable legal
fees) incurred by the Bank in connection with the preparation, execution and
delivery of this letter agreement, the Security Agreement, the Term Notes and
all other instruments and documents to be delivered in connection with any Term
Loan or in connection with any other Obligations and any amendments or
modifications of any of the foregoing, as well as the reasonable costs and
expenses (including, without limitation, the reasonable fees and expenses of
legal counsel) incurred by the Bank in connection with preserving, enforcing or
exercising, upon default, any rights or remedies under this letter agreement,
the Security Agreement, each Term Note and/or any of the other Obligations and
all other instruments and documents delivered or to be delivered hereunder or in
connection herewith, all whether or not legal action is instituted. In addition,
the Borrower shall be obligated to pay any and all stamp and other taxes payable
or determined to be payable in connection with the execution and delivery of
this letter agreement, the Security Agreement, any Term Note and all other
instruments and documents to be delivered in connection with any Obligation. Any
fees, expenses or other charges which the Bank is entitled to receive from the
Borrower under this Section shall bear interest from the date of any demand
therefor until the date when paid at a rate per annum equal to the sum of (i)
four (4%) percent per annum plus (ii) the per annum rate otherwise payable under
----
the 1999-2000 Term Note (but in no event in excess of the maximum rate permitted
by then applicable law).
6.2. Capital Adequacy. If the Bank shall have determined that the
----------------
adoption or phase-in after the date hereof of any applicable law, rule or
regulation regarding capital requirements for banks or bank holding companies,
or any change therein after the date hereof, or any change in the interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by the Bank with any request or directive of such entity regarding
capital adequacy (whether or not having the force of law) has or would have the
effect of reducing the return on the Bank's capital with respect to any of the
Term Loans and/or the within-described term loan facilities and/or any of the
other Obligations to a level below that which the Bank could have achieved
(taking into consideration the Bank's policies with respect to capital adequacy
immediately before such adoption, phase-in, change or compliance and assuming
that the Bank's capital was then fully utilized) but for such adoption, phase-
in, change or compliance by any amount deemed by the Bank to be material: (i)
the Bank shall promptly after its determination of such occurrence give notice
thereof to the Borrower; and (ii) the Borrower shall pay forthwith to the Bank
as an additional fee such amount as the Bank certifies to be the amount that
will compensate it for such reduction with respect to the any of Term Loans
and/or the within-described term loan facilities and/or any of the other
Obligations.
-21-
<PAGE>
A certificate of the Bank claiming compensation under this Section shall be
conclusive in the absence of manifest error; provided that the Bank will not
claim compensation under this Section unless the Bank is seeking similar
compensation generally from other similar borrowers whose loan documents contain
similar provisions. Such certificate shall set forth the nature of the
occurrence giving rise to such compensation, the additional amount or amounts to
be paid to it hereunder and the method by which such amounts were determined.
In determining such amounts, the Bank may use any reasonable averaging and
attribution methods. No failure on the part of the Bank to demand compensation
on any one occasion shall constitute a waiver of its right to demand such
compensation on any other occasion and no failure on the part of the Bank to
deliver any certificate in a timely manner shall reduce any obligation of the
Borrower to the Bank under this Section.
6.3. Other Agreements. The provisions of this letter agreement are not in
----------------
derogation or limitation of any obligations, liabilities or duties of the
Borrower under any of the other Loan Documents or any other agreement with or
for the benefit of the Bank. No inconsistency in default provisions between
this letter agreement and any of the other Loan Documents or any such other
agreement will be deemed to create any additional grace period or otherwise
derogate from the express terms of each such default provision. No covenant,
agreement or obligation of the Borrower contained herein, nor any right or
remedy of the Bank contained herein, shall in any respect be limited by or be
deemed in limitation of any inconsistent or additional provisions contained in
any of the other Loan Documents or any such other agreement.
6.4. Governing Law. This letter agreement and each of the Term Notes
-------------
shall be governed by, and construed and enforced in accordance with, the laws of
The Commonwealth of Massachusetts.
6.5. Addresses for Notices, etc. All notices, requests, demands and other
---------------------------
communications provided for hereunder shall be in writing and shall be mailed or
delivered to the applicable party at the address indicated below:
If to the Borrower:
Sycamore Networks, Inc.
10 Elizabeth Drive
Chelmsford, MA 01824
Attention: Daniel Smith, Chief Executive Officer
-22-
<PAGE>
If to the Bank:
Fleet National Bank
High Technology Division
Mail Stop: MA OF D07A
One Federal Street
Boston, MA 02110
Attention: Lucie Burke, Vice President
or, as to each of the foregoing, at such other address as shall be designated by
such Person in a written notice to the other party complying as to delivery with
the terms of this Section. All such notices, requests, demands and other
communications shall be deemed delivered on the earlier of (i) the date received
or (ii) the date of delivery, refusal or non-delivery indicated on the return
receipt if deposited in the United States mails, sent postage prepaid, certified
or registered mail, return receipt requested, addressed as aforesaid. If any
such notice, request, demand or other communication is hand-delivered, same
shall be effective upon receipted delivery.
6.6. Binding Effect; Assignment; Termination. This letter agreement shall
---------------------------------------
be binding upon the Borrower and the Bank and their respective successors and
assigns and shall inure to the benefit of the Borrower and the Bank and their
respective permitted successors and assigns. The Borrower may not assign this
letter agreement or any rights hereunder without the express written consent of
the Bank. The Bank may, in accordance with applicable law, from time to time
assign or grant participations in this letter agreement, any Term Loans and/or
any Term Notes. Without limitation of the foregoing generality,
(i) The Bank may at any time pledge all or any portion of its rights
under the Loan Documents (including any portion of any Term Note) to any of
the 12 Federal Reserve Banks organized under Section 4 of the Federal
Reserve Act, 12 U.S.C. Section 341. No such pledge or the enforcement
thereof shall release the Bank from its obligations under any of the Loan
Documents.
(ii) The Bank shall have the unrestricted right at any time and from
time to time, and without the consent of or notice to the Borrower, to
grant to one or more banks or other financial institutions (each, a
"Participant") participating interests in the Bank's obligation to lend
hereunder and/or any or all of the Term Loans held by the Bank hereunder.
In the event of any such grant by the Bank of a participating interest to a
Participant, whether or not upon notice to the Borrower, the Bank shall
remain responsible for the performance of its obligations hereunder and the
Borrower shall continue to deal solely and directly with the Bank in
connection with the Bank's rights and obligations hereunder. The Bank may
furnish any information concerning the Borrower in its possession from time
to time to prospective assignees and Participants; provided that the Bank
shall require any such prospective assignee or Participant to agree in
writing to maintain the confidentiality of such information to the same
extent as the Bank would be required to maintain such confidentiality.
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<PAGE>
The Borrower may terminate this letter agreement and the financing
arrangements made herein by giving written notice of such termination to the
Bank; provided that no such termination will release or waive any of the Bank's
rights or remedies or any of the Borrower's obligations under this letter
agreement or any of the other Loan Documents unless and until the Borrower has
paid in full the Term Loans and all interest thereon and all fees and charges
payable in connection therewith.
6.7. Consent to Jurisdiction. The Borrower irrevocably submits to the
-----------------------
non-exclusive jurisdiction of any Massachusetts court or any federal court
sitting within The Commonwealth of Massachusetts over any suit, action or
proceeding arising out of or relating to this letter agreement and/or any Term
Note. The Borrower irrevocably waives, to the fullest extent permitted by law,
any objection which it may now or hereafter have to the laying of venue of any
such suit, action or proceeding brought in such a court and any claim that any
such suit, action or proceeding has been brought in an inconvenient forum. The
Borrower agrees that final judgment in any such suit, action or proceeding
brought in such a court shall be enforced in any court of proper jurisdiction by
a suit upon such judgment, provided that service of process in such action, suit
or proceeding shall have been effected upon the Borrower in one of the manners
specified in the following paragraph of this (S)6.7 or as otherwise permitted by
law.
The Borrower hereby consents to process being served in any suit, action or
proceeding of the nature referred to in the preceding paragraph of this (S)6.7
either (i) by mailing a copy thereof by registered or certified mail, postage
prepaid, return receipt requested, to it at its address set forth in (S)6.5 (as
such address may be changed from time to time pursuant to said (S)6.5) or (ii)
by serving a copy thereof upon it at its address set forth in (S)6.5 (as such
address may be changed from time to time pursuant to said (S)6.5).
6.8. Severability. In the event that any provision of this letter
------------
agreement or the application thereof to any Person, property or circumstances
shall be held to any extent to be invalid or unenforceable, the remainder of
this letter agreement, and the application of such provision to Persons,
properties or circumstances other than those as to which it has been held
invalid and unenforceable, shall not be affected thereby, and each provision of
this letter agreement shall be valid and enforced to the fullest extent
permitted by law.
6.9. Replacement Note. Upon receipt of an affidavit of an officer of the
----------------
Bank as to the loss, theft, destruction or mutilation of any Term Note or of any
other Loan Document which is not of public record and upon the Bank providing
reasonable indemnification for the Borrower (the Borrower agreeing that the
Bank's unsecured agreement of indemnity will be sufficient for this purpose)
and, in the case of any such mutilation, upon surrender and cancellation of such
Term Note or other Loan Document, the Borrower will issue, in lieu thereof, a
replacement Term Note or other Loan Document in the same principal amount (as to
any Term Note) and in any event of like tenor.
6.10. Usury. All agreements between the Borrower and the Bank are hereby
-----
expressly limited so that in no contingency or event whatsoever, whether by
reason of acceleration of maturity of any Term Note or otherwise, shall the
amount paid or agreed to be paid to the Bank
-24-
<PAGE>
for the use or the forbearance of the Indebtedness represented by any Term Note
exceed the maximum permissible under applicable law. In this regard, it is
expressly agreed that it is the intent of the Borrower and the Bank, in the
execution, delivery and acceptance of the Term Notes, to contract in strict
compliance with the laws of The Commonwealth of Massachusetts. If, under any
circumstances whatsoever, performance or fulfillment of any provision of any of
the Term Notes or any of the other Loan Documents at the time such provision is
to be performed or fulfilled shall involve exceeding the limit of validity
prescribed by applicable law, then the obligation so to be performed or
fulfilled shall be reduced automatically to the limits of such validity, and if
under any circumstances whatsoever the Bank should ever receive as interest an
amount which would exceed the highest lawful rate, such amount which would be
excessive interest shall be applied to the reduction of the principal balance
evidenced by the Term Notes and not to the payment of interest. The provisions
of this (S)6.10 shall control every other provision of this letter agreement and
of the Term Notes.
6.11. WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK HEREBY KNOWINGLY,
--------------------
VOLUNTARILY AND INTENTIONALLY MUTUALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN
RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS LETTER AGREEMENT, ANY TERM NOTE OR ANY OTHER LOAN DOCUMENTS OR OUT OF ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR
ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE
BANK TO ENTER INTO THIS LETTER AGREEMENT AND TO MAKE TERM LOANS AS CONTEMPLATED
HEREIN.
VII. DEFINED TERMS
-------------
7.1. Definitions. In addition to terms defined elsewhere in this letter
-----------
agreement, as used in this letter agreement, the following terms have the
following respective meanings:
"ACH" - As defined in (S)1.6.
"ACH Exposure" - As defined in (S)1.6.
"Business Day" - Any day which is not a Saturday, nor a Sunday nor a public
holiday under the laws of the United States of America or The Commonwealth of
Massachusetts applicable to a national bank.
"Capital Base" - At any time, the sum of (i) the consolidated Tangible Net
Worth of the Borrower and Subsidiaries then existing plus (ii) the principal
----
amount of Subordinated Debt of the Borrower then outstanding (nothing contained
herein being deemed to authorize the incurrence of any additional Subordinated
Debt).
"Collateral" - All property now or hereafter owned by the Borrower or in
which the Borrower now or hereafter has any interest which is now or hereafter
described as "Collateral" in the Security Agreement or in Subsection 7.2(b)
below.
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<PAGE>
"Current Liabilities" - All liabilities of the Borrower and/or any
Subsidiary of the Borrower which would properly be shown as current liabilities
on a consolidated balance sheet of the Borrower prepared in accordance with
generally accepted accounting principles consistently applied. "Current
Liabilities" will in any event be deemed to include current maturities of the
Term Loans.
"Default" - Any event or circumstance which, with the passage of time or
the giving of notice or both, could become an Event of Default under this letter
agreement.
"Determination Date" - As defined in (S)3.7.
"ERISA" - The Employee Retirement Income Security Act of 1974, as amended.
"Indebtedness" - All obligations of a Person, whether current or long-term,
senior or subordinated, which in accordance with generally accepted accounting
principles would be included as liabilities upon such Person's balance sheet at
the date as of which Indebtedness, is to be determined, and shall also include
guaranties, endorsements (other than for collection in the ordinary course of
business) or other arrangements whereby responsibility is assumed for the
obligations of others, whether by agreement to purchase or otherwise acquire the
obligations of others, including any agreement, contingent or otherwise, to
furnish funds through the purchase of goods, supplies or services for the
purpose of payment of the obligations of others.
"Loan Documents" - Each of this letter agreement, the 1999 Term Note, the
1998 Term Note, the Security Agreement and each other instrument, document or
agreement evidencing, securing, guaranteeing or relating in any way to any of
the Term Loans or to any ACH transaction, all whether now existing or hereafter
arising or entered into.
"Net Income" (or "Net Loss") - The book net income (or book net loss, as
the case may be) of a Person for any period, after all taxes actually paid or
accrued and all expenses and other charges determined in accordance with
generally accepted accounting principles consistently applied.
"Net Quick Assets" - Such current assets of the Borrower as consist of
cash, cash-equivalents and Receivables (less an allowance for bad debt
consistent with the Borrower's prior experience).
"1998 Term Loans" - As defined in (S)1.4.
"1998 Term Note" - As defined in (S)1.4.
"1999-2000 Term Loans" - As defined in (S)1.2.
"1999 Term Note" - As defined in (S)1.1.
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<PAGE>
"Obligations" - All Indebtedness, covenants, agreements, liabilities and
obligations, now existing or hereafter arising, made by the Borrower with or for
the benefit of the Bank or owed by the Borrower to the Bank, whether or not
relating to any of the Term Loans. "Obligations" includes, without limitation,
obligations with respect to ACH transactions.
"PBGC" - The Pension Benefit Guaranty Corporation or any successor thereto.
"Person" - An individual, corporation, partnership, limited liability
company, joint venture, trust or unincorporated organization, or a government or
any agency or political subdivision thereof.
"Qualifying Equipment" - Items of computer and engineering equipment (not
including software, except as provided in the next following sentence) purchased
by the Borrower within the 90 days prior to the date of the advance of the
relevant 1999-2000 Term Loan (after November 1, 1998 with respect to the initial
1999-2000 Term Loan), all of which items of equipment must meet all of the
following criteria: (i) such items of equipment are shown on the Equipment List
heretofore delivered by the Borrower to the Bank or have otherwise been approved
by the Bank for use in supporting a 1999-2000 Term Loan, (ii) each item of such
equipment has been delivered to and installed at the Borrower's Chelmsford, MA
premises and has become fully operational, (iii) the Borrower has paid in full
for each item of such equipment (or is paying for same out of the proceeds of
the relevant 1999-2000 Term Loan substantially simultaneously with the receipt
of such proceeds) and holds title to same, free of all interests and claims of
any other Person (other than the security interest of the Bank), and (iv) the
Bank has a fully perfected first security interest in such equipment.
Notwithstanding the provisions of the immediately preceding sentence, the
Borrower may include within "Qualifying Equipment" any software (not including
"shrink-wrapped" software) which meets all of the conditions and criteria set
forth in the immediately preceding sentence to be Qualifying Equipment (other
than the exclusion of software contained therein) and which is purchased by the
Borrower for use in connection with its tangible Qualifying Equipment; provided
that the aggregate costs of the software so included will be limited as set
forth in (S)1.2.
"Receivables" - As to any Person, all of such Person's present and future
accounts receivable for goods sold or for services rendered.
"SEC" - The Securities and Exchange Commission or any successor thereto.
"Senior Debt" - All Indebtedness of the Borrower and/or any of its
Subsidiaries which is not Subordinated Debt.
"Subordinated Debt" - Any Indebtedness of the Borrower which is expressly
subordinated, pursuant to a subordination agreement in form and substance
satisfactory to the Bank, to all Indebtedness now or hereafter owed by the
Borrower to the Bank.
"Subsidiary" - Any corporation or other entity of which the Borrower and/or
any of its Subsidiaries, directly or indirectly, owns, or has the right to
control or direct the voting of, fifty
-27-
<PAGE>
(50%) percent or more of the outstanding capital stock or other ownership
interest having general voting power (under ordinary circumstances).
"Tangible Net Worth" - An amount equal to the total assets of any Person
(excluding (i) the total intangible assets of such Person, (ii) any minority
interests in Subsidiaries and (iii) any assets representing amounts due from any
officer or employee of such Person or from any Subsidiary of such Person) minus
the total liabilities of such Person. Total intangible assets shall be deemed
to include, but shall not be limited to, the excess of cost over book value of
acquired businesses accounted for by the purchase method, formulae, trademarks,
trade names, patents, patent rights and deferred expenses (including, but not
limited to, unamortized debt discount and expense, organizational expense,
capitalized software costs and experimental and development expenses).
"Term Loans" - Collectively, the 1998 Term Loans and the 1999-2000 Term
Loans.
"Term Notes" - Collectively, the 1998 Term Note and the 1999 Term Note.
"Termination Fee" - As defined in (S)1.3.
Any defined term used in the plural preceded by the definite article shall
be taken to encompass all members of the relevant class. Any defined term used
in the singular preceded by "any" shall be taken to indicate any number of the
members of the relevant class.
7.2. Security Agreement. (a) The Borrower acknowledges and agrees that
------------------
the "Obligations" described in and secured by the Security Agreement include,
without limitation, all of the obligations of the Borrower under each Term Note
and/or this letter agreement, as well as all ACH transactions.
(b) The Security Agreement is hereby modified to provide as follows:
(i) That the "Collateral" subject thereto includes, without
limitation and in addition to the Collateral described therein, all of the
Borrower's files, books and records (including, without limitation, all
electronically recorded data) all whether now owned or existing or
hereafter acquired, created or arising, but excluding any of the foregoing
items in this clause (i) which constitute or relate to intellectual
property. The Borrower hereby grants to the Bank a security interest in all
such Collateral in order to secure the full and prompt payment and
performance of all of the Obligations.
(ii) That, upon the occurrence and during the continuance of any
Event of Default (as defined in (S)5.1 of this letter agreement), the Bank
may, at any time, notify account debtors that the Collateral has been
assigned to the Bank and that payments by such account debtors shall be
made directly to the Bank, without prior notice to the Borrower but with
written notice of such notification to be given to the Borrower promptly
after such notification is given to account debtors. At any time after the
occurrence and during the continuance of an Event of Default, the Bank may
collect the
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<PAGE>
Borrower's Receivables, or any of same, directly from account debtors and
may charge the reasonable collection costs and expenses to the Borrower.
-29-
<PAGE>
This letter agreement is executed, as an instrument under seal, as of the
day and year first above written.
Very truly yours,
SYCAMORE NETWORKS, INC.
By /s/ Daniel Smith
--------------------------
Name: Daniel Smith
Title: President
Accepted and agreed:
FLEET NATIONAL BANK
By /s/ Lucie Burke
-----------------
Name: Lucie burke
Title: Vice President
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<PAGE>
DISCLOSURE SCHEDULE
Item 2.1(a) Jurisdictions in which Borrower is qualified; Subsidiaries
Item 2.1 (b) Stock Ownership
Item 2.1(e) Litigation
Item 2.1 (j) Collateral locations; record owner of each location
Item 2.1(l) Non-competition Agreements
Item 4.1 Existing Indebtedness
Item 4.2 Existing Liens
Item 4.3 Existing Guaranties
Item 5.1(n) Permitted 50% stockholders
<PAGE>
[Fleet Bank Logo] Exhibit 10.5
Inventory and Accounts Receivable Security Agreement (Short Form)
April 22, 1999
To secure the due payment and performance of all of the liabilities and
obligations hereunder of the undersigned, herein called "Borrower", to Fleet
National Bank, hereinafter called "Bank", and all other liabilities and
obligations of Borrower to Bank of every name and nature whatsoever, direct or
indirect, absolute or contingent, now existing or hereafter arising or acquired,
including, without limitation, the due payment and performance of all
liabilities and obligations under any and all notes, all hereinafter called
"Obligations", the Borrower hereby grants to Bank a continuing security interest
in:
(a) All accounts, contracts, contract rights (provided that, as used
herein, "contracts" and "contract rights" shall not be deemed to include any of
the Borrower's leases of real estate or any rights of the Borrower under such
leases), notes, bills, drafts, acceptances, general intangibles (excluding,
however, patents, trademarks, copyrights and other similar items of intellectual
property), choses in action, and all other debts, obligations and liabilities,
in whatever form, owing to Borrower from any person, firm or corporation, or any
other legal entity, whether now existing or hereafter arising, now or hereafter
received by or belonging or owing to Borrower, for goods sold by it or for
services rendered by it or however otherwise same may have been established or
created, all guarantees and securities therefor, all right, title and interest
of Borrower in the merchandise or services which gave rise thereto, including
the rights of reclamation and stoppage in transit, all rights of an unpaid
seller of merchandise or services, and in the proceeds thereof, including,
without limitation, all proceeds of credit, fire or other insurance, and any tax
refunds.
(b) All goods, merchandise, raw materials, goods and work in process,
finished goods and other tangible personal property, now owned or hereafter
acquired and held for sale or lease, or furnished or to be furnished under
contract of service, or used or consumed in Borrower's business and in the
products and proceeds thereof, including, without limitation, all proceeds of
fire or other insurance. This portion of the collateral being sometimes referred
to as "Inventory".
All of the accounts and other property as set forth in (a) above and
inventory as set forth in (b) above are hereinafter referred to collectively as
"Collateral".
The Collateral and all proceeds and products thereof shall be security for
all Obligations. Until all Obligations have been fully satisfied, Bank's
security interest in the Collateral and all proceeds and products thereof, shall
continue in full force and effect and Bank will at all times after the
occurrence and during the continuance of an Event of Default (as defined in the
Letter Agreement of even date between Bank
<PAGE>
and Borrower) have the right to take physical possession of the Inventory and to
maintain such possession on Borrower's premises or to remove the inventory or
any part thereof to such other places as Bank may desire. If Bank exercises
Bank's right to take possession of the Inventory, Borrower shall, upon Bank's
demand, assemble the Inventory and make it available to Bank at a place
reasonably convenient to Bank.
If Borrower shall fail to pay, when due, any of the Obligations which
failure continues uncured beyond the expiration of any applicable notice and/or
grace period or shall fail to observe or perform any of the provisions of this
Agreement or any other agreement now or hereafter entered into between Bank and
Borrower which failure continues uncured beyond the expiration of any applicable
notice and/or grace period, Borrower shall be in default hereunder. In the
event of such default all Obligations of Borrower to Bank shall, at the option
of the Bank, and without notice to or demand upon Borrower become and be
immediately due and payable and thereupon Bank may exercise any and all rights
and remedies of a secured party available under the Uniform Commercial Code and
all other applicable law.
Borrower represents, warrants and covenants that all Inventory is and will
be owned by Borrower, free of all other liens and encumbrances, and shall be
kept by Borrower at 10 Elizabeth Drive, Chelmsford, MA 01824 or other locations
as contemplated by (S) 4.10 of the Letter Agreement and that Borrower shall not
(without Bank's prior written approval) remove the Inventory therefrom except
for the purposes of sale in the ordinary course of business.
Except for sales made in the ordinary course of business, Borrower shall
not sell, encumber, grant a security interest in or dispose of or permit the
sale, encumbrance or disposal of any Collateral without Bank's prior written
consent. A sale in the ordinary course of business shall not include a transfer
in total or partial satisfaction of a debt.
Borrower shall perform any and all steps requested by Bank to perfect
Bank's security interest in the Collateral, such as leasing warehouses to Bank
or its designee, placing and maintaining signs, appointing custodians, executing
and filing financing or continuation statements in form and substance
satisfactory to Bank. If any Inventory is in the possession or control of any
of Borrower's agents or processors, Borrower shall notify such agents or
processors of Bank's interest therein, and upon request instruct them to hold
all such Inventory for Bank's account and subject to Bank's instructions. A
physical listing of all Inventory, wherever located, shall be taken by Borrower
whenever requested by Bank, and a copy of each such physical listing shall be
supplied to Bank. Bank may examine and inspect the Inventory at any time, at
the times and upon the notice provided for in the aforesaid Letter Agreement.
2
<PAGE>
Borrower agrees to keep all the Inventory insured with coverage and amounts
not less than that usually carried by one engaged in a like business and in any
event not less than that reasonably required by Bank with loss payable to the
Bank and Borrower, as their interests may appear, hereby appointing Bank
(effective after the occurrence and during the continuance of any Event of
Default) as attorney for Borrower in obtaining, adjusting, settling and
cancelling such insurance and endorsing any drafts. All premiums on such
insurance shall be paid by Borrower and the policies delivered to Bank. If
Borrower fails to do so, Bank may procure such insurance and charge the cost to
Borrower's loan account. As further assurance for the payment and performance
of the Obligations, Borrower hereby assigns to Bank as further collateral for
the Obligations all sums including returned or unearned premiums, which may
become payable under any policy of insurance on the Collateral and Borrower
hereby directs each insurance company issuing any such policy to make payment of
such sums directly to Bank. So long as no Event of Default (as defined in the
Letter Agreement) has occurred and is then continuing, the Bank will promptly
release to the Borrower insurance proceeds actually received by the Bank to the
extent that same are used by the Borrower for the repair and/or replacement of
any Collateral damaged or destroyed by any insured casualty.
If in the event of the sale of the Collateral the proceeds thereof are
insufficient to pay all amounts to which Bank is legally entitled, Borrower will
be liable for the deficiency, together with interest thereon and the reasonable
fees of any attorney employed by Bank to collect such deficiency.
Bank shall have the right to enforce any remedies hereunder alternatively,
successively or concurrently. A waiver of any default of Borrower shall not be a
waiver of any subsequent, similar or other default. No delay in the exercise of
any of Bank's rights or remedies hereunder shall constitute a waiver of such
right or remedy or of any other right or remedy.
This Agreement shall not be construed to be in limitation of or in
substitution for any other grant of security interest from Borrower to Bank made
prior to or contemporaneously herewith, and no other such grant of a security
interest made subsequent to or contemporaneously herewith shall be construed to
be in limitation of or in substitution for this Agreement unless expressly and
specifically provided therein.
This Agreement shall take effect as a sealed instrument, shall be governed
by and construed according to the laws of the Commonwealth of Massachusetts,
shall be binding upon the heirs, executors, administrators, successors and
assigns of Borrower and shall inure to the benefit of the successors and assigns
of Bank.
3
<PAGE>
Witnessed by: Sycamore Networks, Inc.
---------------------------------------------
BORROWER
________________________________ By: /s/ Dan Smith
-----------------------------------------
Its President
TITLE
Address: 10 Elizabeth Drive
-------------------------------------
FLEET NATIONAL BANK NUMBER AND STREET
Chelmsford, MA 01824
---------------------------------------------
By: /s/ Illegible CITY, COUNTRY AND STATE
-----------------------------
Its:
4
<PAGE>
RIDER TO INVENTORY AND ACCOUNTS RECEIVABLE
SECURITY AGREEMENT FROM
SYCAMORE NETWORKS, INC.
TO FLEET NATIONAL BANK
The foregoing Inventory and Accounts Receivable Security Agreement (the
"IAR Security Agreement") is modified as follows:
1. Clause (a) of the first grammatical paragraph of the IAR Security
Agreement is modified by inserting therein, immediately after the words
"contract rights", the following:
"(provided that, as used herein, 'contracts' and 'contract
rights' shall not be deemed to include any of the Borrower's
leases of real estate or any rights of the Borrower under
such leases)"
2. The first sentence of the fourth grammatical paragraph of the IAR
Security Agreement is modified by inserting therein, immediately after the words
"any of the Obligations", the following:
"which failure continues uncured beyond the expiration of
any applicable notice and/or grace period"
3. The first sentence of the fourth grammatical paragraph of the IAR
Security Agreement is further modified by inserting therein, immediately after
the words "Bank and Borrower", the following:
"which failure continues uncured beyond the expiration of
any applicable notice and/or grace period"
4. The fifth grammatical paragraph of the IAR Security Agreement is
modified by inserting therein, immediately after the words "Chelmsford, MA
01824", the following:
"or other locations as contemplated by (S)4.10 of the Letter
Agreement"
5. The period at the end of the seventh grammatical paragraph of the IAR
Security Agreement is deleted and the following is substituted in its stead:
", at the times and upon the notice provided for in the
aforesaid Letter Agreement."
5
<PAGE>
6. The first sentence of the eighth grammatical paragraph of the IAR
Security Agreement is modified by inserting therein, immediately after the words
"appointing Bank", the following:
"(effective after the occurrence and during the continuance
of any Event of Default)"
7. The last sentence of the eighth grammatical paragraph of the IAR
Security Agreement is modified by inserting therein, immediately after the words
"assigns to Bank", the following:
"as further collateral for the Obligations"
8. The eighth grammatical paragraph of the IAR Security if further
modified by adding, at the end of such paragraph, the following:
"So long as no Event of Default (as defined in the Letter
Agreement) has occurred and is then continuing, the Bank
will promptly release to the Borrower insurance proceeds
actually received by the Bank to the extent that same are
used by the Borrower for the repair and/or replacement of
any Collateral damaged or destroyed by any insured
casualty."
6
<PAGE>
Exhibit 10.6
Supplementary Security Agreement
Security Interest in Goods and Chattels
April 22, 1999
To: Fleet National Bank
Gentlemen:
This is a supplement to our Inventory and Accounts Receivable Security
Agreement (the "Agreement") with you bearing the effective date of even date
herewith. It is hereby incorporated into said Agreement, shall have a term
concurrent therewith and is a part thereof.
1. In addition to your other security, we hereby grant you a continuing
security interest in all machinery, equipment and other goods (as defined in
Article 9 of the Uniform Commercial Code) whether now owned or hereafter
acquired by us and wherever located, all replacements and substitutions therefor
or accessions thereto and all proceeds thereof (all herein referred to
collectively as "Collateral") and including, also without limitation, all
proceeds of fire or other insurance covering the aforesaid property.
2. The Collateral shall be security for all Obligations (as defined in
the Agreement). Until all Obligations have been fully satisfied, your security
interest in the Collateral shall continue in full force and effect and you will
at all times after the occurrence of any Event of Default under the letter
agreement described below have the right to the physical possession of the
Collateral and to maintain such possession on our premises or to remove the
Collateral or any part thereof to such other places as you may desire. If you
exercise your right to take possession of the Collateral, we shall, upon your
demand, assemble the Collateral and make it available to you at a place
reasonably convenient to you. In addition, with respect to all Collateral, you
shall have all of the rights and remedies set forth in the Agreement and all of
the rights and remedies provided in the Uniform Commercial Code.
3. [taken out]
4. We represent, warrant the covenant that (a) the Collateral is in our
possession at 10 Elizabeth Drive, Chelmsford, County of Middlesex, Commonwealth
of Massachusetts or other locations as contemplated by Section 4.10 of the
letter agreement; (b) we are the lawful owners of the Collateral and have the
sole right and lawful authority to deliver this instrument; (c) the Collateral
and every part thereof is and will be free and clear of all security interests,
liens and encumbrances of every kind, nature and description except as follows:
purchase money security interests and other exceptions permitted by letter
agreement of even date herewith between
<PAGE>
the Borrower and the Bank and we will warrant and defend the Collateral against
the claims and demands of all persons; (d) we will keep the Collateral free and
clear of all attachments, levies, taxes, liens, security interests and
encumbrances of every kind and nature, except as listed above, and we will at
our own cost and expense, keep the Collateral in a good state of repair and will
not waste or destroy the same or any part thereof except for items disposed of
in the ordinary course to the extent expressly permitted by the aforesaid letter
agreement and will not be negligent in the care and use thereof; (e) we will not
without your prior written consent as provided in the letter agreement, sell,
assign, mortgage, lease or otherwise dispose of the Collateral except for
obsolete or worn out items disposed of in the ordinary course and except for
liens permitted by the aforesaid letter agreement; (f) we will insure the
Collateral in your name against loss or damage by fire, theft, burglary,
pilferage, loss in transit and such other hazards as you shall specify, in
amounts and under policies by insurers acceptable to you, and if we fail to do
so, you may procure such insurance and charge the cost to our loan account; (g)
as further assurance for the payment and performance of the Obligations, we
hereby assign to you (as further collateral for the Obligations) all sums,
including returned or unearned premiums, which may become payable under any
policy of insurance on the Collateral and we hereby direct each insurance
company issuing any such policy to make payment of such sums directly to you;
provided that so long as no Event of Default (as defined in the aforesaid letter
agreement) has occurred and is then continuing, the Bank will promptly release
to the Borrower insurance proceeds actually received by the Bank to the extent
that same are used by the Borrower for the repair and/or replacement of any
Collateral damaged or destroyed by any insured casualty; (h) except for items
disposed of in the ordinary course to the extent expressly permitted by the
aforesaid letter agreement, we will not remove the Collateral from its present
location without your prior written consent (other than removal to other
locations as contemplated by Section 4.10 of the letter agreement) and we will
at all times, allow you or your representatives free access to and right of
inspection of the Collateral (subject to the terms of the aforesaid letter
agreement); (i) we will comply with the material terms and conditions of any
leases covering the premises wherein the Collateral is located and any orders,
ordinances, laws or statutes of any city, state or other governmental department
having jurisdiction with respect to such premises or the conduct of business
thereon, and, when requested by you, we will execute any written instruments and
do any other acts reasonably necessary to effectuate more fully the purposes and
provisions of the Agreement; (j) we will indemnify and save you harmless from
all loss, cost, damage, liability or expenses including reasonable attorneys'
fees that you may sustain or incur by reason of defending or protecting your
security interest or the priority thereof or enforcing the Obligations, or in
the prosecution or defense of any action or proceeding concerning any matter
growing out of or connected with the Agreement, the Obligations or the
Collateral.
5. You may, at your option, discharge any taxes, liens, security
interests or other encumbrances at any time levied or placed on the Collateral
and not permitted
2
<PAGE>
by the letter agreement and you may pay for the maintenance and preservation of
the Collateral and we will reimburse you on demand for any payment made or any
reasonable expense incurred by you pursuant to the foregoing authority, with
interest at the rate provided in the Agreement.
Witnessed by: Very truly yours,
SYCAMORE NETWORKS, INC.
_______________________________ By: /s/ Daniel Smith
-----------------------------------------
Its: President
Accepted at Boston, Massachusetts 4/27/99
FLEET NATIONAL BANK
By: /s/ Illegible
-----------------------------------------
Its: Vice President
3
<PAGE>
RIDER TO SUPPLEMENTARY SECURITY AGREEMENT
FROM SYCAMORE NETWORKS, INC.
TO FLEET NATIONAL BANK
The foregoing Supplementary Security Agreement - Security Interest in Goods
and Chattels (the "Supplementary Security Agreement") is modified as follows:
1. By inserting into clause (a) of Section 4 of the Supplementary
Security Agreement, immediately after the words "Commonwealth of Massachusetts",
the following:
"or other locations as contemplated by Section 4.10 of the letter
agreement"
2. By inserting into clause (e) of Section 4 of the Supplementary
Security Agreement, immediately after the words "written consent", the
following:
"as provided in the letter agreement"
3. By inserting into clause (g) of Section 4 of the Supplementary
Security Agreement, immediately after the words "assign to you", the following:
"(as further collateral for the Obligations)"
4. By adding to clause (g) of Section 4 of the Supplementary Security
Agreement, as the end of such clause (g), the following:
"; provided that so long as no Event of Default (as defined in the
aforesaid letter agreement) has occurred and is then continuing, the
Bank will promptly release to the Borrower insurance proceeds actually
received by the Bank to the extent that same are used by the Borrower
for the repair and/or replacement of any Collateral damaged or
destroyed by any insured casualty."
5. By inserting into clause (h) of Section 4 of the Supplementary
Security Agreement, immediately after the words "written consent", the
following:
"(other than removal to other locations as contemplated by Section
4.10 of the letter agreement)"
6. By inserting into clause (h) of Section 4 of the Supplementary
Security Agreement, immediately after the words "inspection of the Collateral",
the following:
"(subject to the terms of the aforesaid letter agreement)"
4
<PAGE>
EXHIBIT 10.7
LEASE
LANDLORD: BerCar II LLC, a Massachusetts limited liability company
TENANT: Sycamore Networks, Inc., a Delaware Corporation
PREMISES: 10 Elizabeth Drive
Chelmsford, Massachusetts
DATED: DECEMBER 21, 1998
GARY BUCKMAN
244 1550
__________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - REFERENCE DATA............................................ 1
(A) SUBJECTS REFERRED TO...................................... 1
(B) EXHIBITS.................................................. 2
ARTICLE II - PREMISES................................................. 2
ARTICLE III - TERM AND CONSTRUCTION................................... 3
(A) TERM 3
(B) LANDLORD'S REQUIRED WORK.................................. 3
(C) TENANT'S WORK............................................. 4
(D) GENERAL CONSTRUCTION PROVISIONS........................... 4
ARTICLE IV - LANDLORD'S COVENANTS..................................... 4
(A) LANDLORD'S COVENANTS DURING THE TERM: .................... 4
(B) INTERRUPTIONS............................................. 5
ARTICLE V - RENT...................................................... 5
(A) FIXED RENT................................................ 5
(C) ADDITIONAL RENT - OPERATING COSTS......................... 7
(D) ADDITIONAL RENT - ELECTRICITY AND GAS..................... 9
ARTICLE VI - TENANT'S COVENANTS....................................... 9
ARTICLE VII - DEFAULT................................................. 14
(A) EVENTS OF DEFAULT......................................... 14
(B) OBLIGATIONS THEREAFTER.................................... 15
ARTICLE VIII - CASUALTY AND TAKING.................................... 16
(A) CASUALTY AND TAKING....................................... 16
(B) RESERVATION OF AWARD...................................... 17
ARTICLE IX - MORTGAGEE................................................ 17
(A) SUBORDINATION TO MORTGAGES................................ 17
(B) LIMITATION ON MORTGAGEE'S LIABILITY....................... 18
(C) NO RELEASE OR TERMINATION................................. 19
ARTICLE X - GENERAL PROVISIONS........................................ 19
(A) CAPTIONS.................................................. 19
(B) SHORT FORM LEASE.......................................... 19
(C) RELOCATION................................................ 19
(D) NOTICES................................................... 20
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(E) SUCCESSORS AND ASSIGNS.................................... 20
(F) NO SURRENDER.............................................. 21
(G) WAIVERS AND REMEDIES...................................... 21
(H) SELF-HELP................................................. 22
(I) ESTOPPEL CERTIFICATE...................................... 22
(J) WAIVER OF SUBROGATION..................................... 22
(K) BROKERS................................................... 23
(L) LANDLORD'S DEFAULTS....................................... 23
(M) EFFECTIVENESS OF LEASE.................................... 24
(N) HAZARDOUS MATERIALS....................................... 24
ARTICLE XI - SECURITY DEPOSIT......................................... 25
ARTICLE XII - MODIFICATION............................................ 25
</TABLE>
EXHIBIT A PLAN SHOWING TENANT'S SPACE
EXHIBIT B INTENTIONALLY OMITTED
EXHIBIT C INTENTIONALLY OMITTED
EXHIBIT D LANDLORD'S SERVICES
EXHIBIT E RULES AND REGULATIONS
EXHIBIT F LEGAL DESCRIPTION OF LOT
EXHIBIT G SIGN CRITERIA
<PAGE>
Lease dated as of the 21st day of December, 1998, by and between BerCar II
LLC, a Massachusetts limited liability company, as landlord ("Landlord"), and
Sycamore Networks, Inc., a Delaware corporation, as tenant ("Tenant").
ARTICLE I
REFERENCE DATA
1. (A) SUBJECTS REFERRED TO:
Each reference in this lease to any of the following subjects shall be
construed to incorporate the data stated for that subject in this Section 1(A):
LANDLORD'S ADDRESS: c/o Altid Enterprises
17 Monsignor O'Brien Highway
Cambridge, Massachusetts 02141-1877
TENANT'S ADDRESS: Prior to Commencement Date:
2 Highwood Drive
Tewksbury, MA 01876
After Commencement Date:
10 Elizabeth Drive
Chelmsford, MA
BUILDING: That certain building known or to be known as and numbered
10 Elizabeth Drive, Chelmsford, Massachusetts
RENTABLE FLOOR AREA OF TENANT'S SPACE:
APPROXIMATELY 34,579 SQUARE FEET
TOTAL RENTABLE FLOOR AREA OF THE BUILDING:
113,280 SQUARE FEET
DELIVERY DATE: JANUARY 4, 1999
TERM: THREE (3) YEARS FROM THE COMMENCEMENT DATE
FIXED RENT:
DURING THE FIRST (1ST) YEAR OF THE TERM -- $224,763.50 PER ANNUM/$18,730.00
PER MONTH; AND
<PAGE>
DURING EACH YEAR OF THE BALANCE OF THE TERM -- $319,855.75 PER
ANNUM/$26,654.65 PER MONTH
SECURITY DEPOSIT: $92,000.00 REDUCED TO $46,000.00 PURSUANT TO ARTICLE XI
GUARANTOR: N/A
PERMITTED USE: OFFICE, LIGHT MANUFACTURING AND RESEARCH AND DEVELOPMENT
PUBLIC LIABILITY INSURANCE LIMITS:
BODILY INJURY: $2,000,000
PROPERTY DAMAGE: $ 500,000
(B) EXHIBITS
The exhibits listed below in this Section are incorporated in this lease by
reference and are to be construed as part of this lease:
EXHIBIT A Plan Showing Tenant's Space
EXHIBIT B Intentionally Omitted
EXHIBIT C Intentionally Omitted
EXHIBIT D Landlord's Services
EXHIBIT E Rules and Regulations
EXHIBIT F Legal Description Of Lot
EXHIBIT G Sign Criteria
ARTICLE II
PREMISES
2. PREMISES
Subject to and with the benefit of the provisions of this lease, Landlord
hereby leases to Tenant, and Tenant leases from Landlord, Tenant's space in the
Building, excluding exterior faces of exterior walls, all common facilities of
the Building and all building service fixtures and equipment serving
(exclusively or in common) other parts of the Building. Tenant's space, with
such exclusions, is hereinafter referred to as "the demised premises". Tenant
shall have, as appurtenant to the demised premises, the right to use in common
with others entitled thereto, subject to reasonable rules from time to time made
by Landlord of which Tenant is given notice: (a) the common facilities from time
to time included in the Building or on the parcel of land on which the Building
is located (said parcel being more particularly described in Exhibit F and being
hereafter referred to as "the Lot"), to the extent from
-2-
<PAGE>
time to time designated by Landlord; (b) the building service fixtures and
equipment serving the demised premises; and (c) the common facilities from time
to time serving the Lot in common with other parcels of land, such as any so-
called access roads, retention ponds, sewer and utility lines and the like, all
to the extent from time to time designated by Landlord. Landlord reserves the
right from time to time (a) to install, repair, replace, use, maintain and
relocate for service to the demised premises and to other parts of the Building
or either, building service fixtures and equipment wherever located in the
Building, (b) to alter, relocate or eliminate any other common facility, and (c)
to increase and/or decrease the size of the Lot by the acquisition of adjacent
land and/or the disposition of any portions thereof. No such increase or
decrease shall be deemed to have occurred until Landlord shall give Tenant
notice thereof. Landlord warrants that there shall always be parking for at
least three and one half (3 1/2) cars per 1,000 square feet of rentable floor
area, subject, however, to takings by eminent domain. Landlord agrees that in
exercising its rights hereunder, it shall not unreasonably interfere with the
conduct of Tenant's business in the demised premises.
ARTICLE III
TERM AND CONSTRUCTION
3. (A) TERM
To have and to hold for a period of three (3) years ("the Term") commencing
on January 4, 1999 (being hereafter referred to as "the Commencement Date") and,
unless sooner terminated as provided herein, ending at the end of the
Approximate Term; provided that if the Term (calculated as aforesaid) would
expire prior to the last day of a calendar month, the Term shall be extended so
as to expire on the last day of such calendar month.
(B) LANDLORD'S REQUIRED WORK
Tenant acknowledges that it has inspected the demised premises, and it is
understood and agreed that Tenant will accept the demised premises in their
existing physical condition, and Landlord shall be under no obligation to make
any repairs, alterations or improvements to the demised premises prior to or at
the commencement of the Term hereof or at any time thereafter, except as herein
specifically provided otherwise. Landlord shall place the mechanical equipment
serving the demised premises (including the heating, ventilating and air
conditioning system) into good operating condition prior to delivery of the
demised premises to Tenant. Landlord shall make all repairs necessary to the
demised premises to place same into compliance with law as of the delivery date.
Tenant shall be obligated to make all repairs necessary as a result of Tenant's
work in the demised premises or which may be required for Tenant to obtain a
certificate of occupancy.
-3-
<PAGE>
(C) TENANT'S WORK
Tenant shall perform, at its own cost and expense, any work required to
prepare the demised premises for Tenant's occupancy (pursuant to plans and
specifications approved by Landlord), and Tenant shall equip the demised
premises with all trade fixtures and personal property suitable or appropriate
to the regular and normal operation of the type of business in which Tenant is
engaged. All such trade fixtures and personal property shall be of first-class
quality, consistent with the quality of existing improvements. As an inducement
for Tenant to execute this lease and prepare the demised premises for Tenant's
occupancy, Landlord shall pay to Tenant the sum of $172,895.00. So long as
Tenant shall not then be in default in the performance of its agreements
contained in this lease, Landlord shall pay said sum to Tenant upon the last to
occur of: (a) the tenth (10th) day after the receipt by Landlord of the rent
payable hereunder for the first full month of the Term of this lease; and (b)
the receipt by Landlord of waivers of liens from all contractors and
subcontractors supplying labor and/or material for Tenant's work. It is
expressly understood and agreed that except for Tenant's signs and movable trade
fixtures, all of Tenant's work shall be the property of Landlord whether or not
the actual cost thereof shall exceed said sum.
(D) GENERAL CONSTRUCTION PROVISIONS
All construction work required or permitted by this lease, whether by
Landlord or by Tenant, shall be done in a good and workmanlike manner and in
compliance with all applicable laws and all lawful ordinances, regulations and
orders of governmental authorities and insurance rating or inspection bureaus
having jurisdiction over the Building. Either party may inspect the work of the
other at reasonable times and shall promptly give notice of observed defects.
ARTICLE IV
LANDLORD'S COVENANTS
4. (A) LANDLORD'S COVENANTS DURING THE TERM:
Landlord covenants during the Term:
(1) To furnish, through Landlord's employees or independent contractors,
the services listed in Exhibit D; and
(2) Except and otherwise provided in this lease, to make such repairs to
the roof, exterior walls (but not any windows, doors, window frames or door
frames), and common facilities of the Building and the Lot as may be necessary
to keep them in Serviceable condition.
-4-
<PAGE>
(B) INTERRUPTIONS
Landlord shall not be liable to Tenant for any compensation or reduction of
rent by reason of inconvenience or annoyance or for loss of business arising
from (a) power losses or shortages, or (b) the necessity of Landlord's entering
the demised premises for any of the purposes in this lease authorized, including
without limitation, for repairing or altering the demised premises or any
portion of the building or for bringing materials into and/or through the
demised premises in connection with the making of repairs or alterations.
In case Landlord is prevented or delayed from making any repairs,
alterations or improvements or furnishing any service or performing any other
covenant or duty to be performed on Landlord's part, by reason of any cause
reasonably beyond Landlord's control, Landlord shall not be liable to Tenant
therefor, nor, except as expressly otherwise provided in Article VIII, shall
Tenant be entitled to any abatement or reduction of rent by reason thereof, nor
shall the same give rise to a claim in Tenant's favor that such failure
constitutes actual or constructive, total or partial, eviction from the demised
premises. Landlord reserves the right to stop any service or utility system
when necessary in Landlord's opinion by reason of accident or emergency or until
necessary repairs have been completed. Except in case of emergency repairs,
Landlord will give Tenant reasonable advance notice of any contemplated stoppage
and, in any event, Landlord will use reasonable efforts to avoid unnecessary
inconvenience to Tenant by reason thereof. Landlord agrees that if there is a
stoppage of such service or utility system for more than ten (10) business days,
and if Tenant cannot reasonably conduct its business in the demised premises as
a result thereof, Fixed Rent shall thereafter abate until such service or
utility system is restored, or Tenant is again able reasonably to conduct its
business in the demised premises.
ARTICLE V
RENT
5. (A) FIXED RENT
Tenant agrees to pay, without any offset or reduction whatever (except as
made in accordance with the express provisions of this lease), fixed monthly
rent equal to 1/12th of the Fixed Rent, such rent to be paid in equal
installments in advance on the first day of each calendar month included in the
Term commencing on February 1, 1999; and for any portion of a calendar month at
the end of the Term, a portion of such fixed monthly rent, prorated on a per
diem basis. All payments of Fixed and additional rent shall be made in lawful
money of the United States and shall be made to Landlord and sent to Landlord
c/o Altid Enterprises, 17 Monsignor O'Brien Highway, Cambridge, Massachussetts
02141-1877, or to such other person and/or at such other address as Landlord may
from time to time designate.
-5-
<PAGE>
If any payment or rent or any other payment hereunder by Tenant to Landlord
shall not be paid within the applicable cure period, the same shall bear
Interest from the date when the Same was payable until the date paid at the
lesser of (a) the prime rate" then charged its most favored customers by Fleet
Bank, plus four percent (4%) per annum, or (b) the highest lawful rate of
interest which Landlord may charge to Tenant without violating any applicable
law ("the Lease Interest Rate"). Such interest shall constitute additional rent
payable hereunder.
(B) ADDITIONAL RENT - TAXES
(1) For the purposes of this Section, "Tax Year" shall mean the twelve-
month period in use in the Town of Chelmsford, Massachusetts for the purpose of
imposing ad valorem taxes upon real property. In the event that said town of
Chelmsford changes the period of its tax year, "Tax Year" shall mean a twelve-
month period commencing on the first day of such new tax year, and each twelve-
month period commencing on an anniversary of such date during the Term of this
lease. For purposes of this Section "the Property" shall mean the Lot and all
improvements thereon from time to time, including the Building; and "the Factor"
shall mean a fraction the numerator of which is the Rentable Floor Area of
Tenant's Space and the denominator of which is the Total Rentable Floor Area of
The Building.
(2) During the Term Tenant shall pay to Landlord, as additional rent, an
amount equal to the real estate taxes imposed with respect to the Property for
each Tax Year multiplied by the Factor, such amount to be apportioned on a per
diem basis for any fraction of a Tax Year contained within the Term. Payment on
account of real estate taxes shall be paid, as part of Tenant's total rent,
monthly, and at the times and in the fashion herein provided for the payment of
Fixed Rent. For an initial period from the Commencement Date until the end of
the first full Tax Year in which the Term shall commence ("the full assessment
year"), the amount so to be paid shall be $2,478.17 per month being the monthly
payment fixed by Landlord on or about the Commencement Date. Promptly after the
end of each Tax Year, Landlord shall make a determination of Tenant's share of
the real estate taxes upon the Property, and if the aforesaid payments
theretofore made for such Tax Year by Tenant exceed Tenant's share of such real
estate taxes, such overpayment shall be credited against the payments thereafter
to be made by Tenant pursuant to this Section (B) or refunded to tenant at the
end of the Term; and if Tenant's share of such real estate taxes for such Tax
Year is greater than such payments theretofore made on account for such Tax
year, tenant shall make a suitable payment to Landlord. After the full
assessment year, the initial monthly payment on account of such real estate
taxes shall be replaced each year by a payment which is one-twelfth (1/12) of
Tenant's share of such real estate taxes for the immediately preceding Tax Year.
Appropriate adjustments shall be made in said monthly payment if the real estate
taxes upon the Property for the current Tax year shall be known prior to the end
of said Tax Year and/or if real estate taxes shall be payable to the taxing
authority in
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installments, all to the end that as each payment of real estate taxes shall
become payable Landlord shall have received from Tenant payments sufficient in
amount to pay Tenant's share of the real estate tax payment then payable by
Landlord. Landlord shall within sixty (60) days following the end of any Tax
Year forward to Tenant a copy of the real estate tax bill together with
Landlord's computation of Tenant's share thereof.
(3) If Landlord shall receive any tax refund or rebate or sum in lieu
thereof with respect to any Tax Year, then out of any balance remaining thereof,
after deducting Landlord's expenses incurred in obtaining such refund, rebate or
other sum, Landlord shall pay to Tenant, provided that Tenant is not then in
default beyond any applicable cure period in the performance of any of its
obligations hereunder, an amount equal to such balance multiplied by the Factor
for such Tax Year; but in no event shall Landlord pay to Tenant out of such
refund, rebate or other sum for any Tax Year more than the amount paid by Tenant
to Landlord pursuant to this Section (B) for such Tax Year.
(4) Any betterment assessment, so-called "rent tax" or any other tax
levied or imposed by any governmental authority in addition to, in lieu of or as
a substitute for real estate taxes shall nevertheless be deemed to be real
estate taxes for the purpose of this Section (B). Furthermore, to the extent
that any equipment installed as part of the Property (e.g. heating or air
conditioning equipment) shall be classified as personal property for purposes of
taxation, any personal property taxes thereon shall be deemed to be real estate
taxes for purposes of this Section (B). Real estate taxes shall not include any
franchise, estate, inheritance, succession, capital levy or transfer tax of
Landlord, or any income tax of Landlord.
(5) In the event of any taking of the Building under circumstances whereby
this lease shall not terminate, the Factor shall be adjusted in order to reflect
any change in the Rentable Floor Area of Tenant's Space and/or the Total
Rentable Floor Area of The Building.
(C) ADDITIONAL RENT - OPERATING COSTS
(1) For the purposes of this Section, the following terms shall have the
following respective meanings:
Operating Year: Each successive fiscal year (as adopted by Landlord) in
which any part of the Term of this lease shall fall.
Operating Expenses: All expenses reasonably necessary and incurred by
Landlord in operating and maintaining the Building, the Lot and their
appurtenances, including but without limitation, premiums for insurance;
compensation and all fringe benefits, workmen's compensation insurance premiums
and payroll taxes paid
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by Landlord to, for or with respect to all persons at or below the level of
building manager engaged in maintenance of the Building and Lot; steam, water,
sewer, electric, gas, telephone, and other utility charges not billed directly
to tenants by Landlord or the utility company; cost of repairs and replacements
to the Building and the Lot; cost of sweeping and cleaning the paved areas of
the Lot; cost of snow plowing or removal, or both, and care of landscaping;
payments to independent contractors under service contracts for any of the
foregoing services (which payments may be to affiliates of Landlord provided the
same are at competitive rates); all other reasonable and necessary expenses paid
in connection with the operation, maintenance, repair and replacement of the
Building and Lot, or either; and a supervisory fee equal to twenty-five percent
of all of the Operating Expenses for the Operating Year in question. Operating
Expenses shall also include the Building's share (as reasonably determined by
Landlord) of costs incurred by Landlord in operating maintaining, repairing,
insuring and paying real estate taxes upon any common facilities of the sort
described in clause (c) of the third sentence of Article II hereof. Operating
Expenses shall not include principal and interest payments on any loans of
Landlord, the cost of repairs covered by insurance proceeds, or brokerage fees
or attorneys' fees incurred in negotiating leases for empty space at the
Building. Further, whenever Landlord shall make any necessary repair or
replacement which shall be deemed to be a "capital item" pursuant to generally
accepted accounting principals, then the cost thereof shall be amortized on a
straight line basis over such item's useful life as determined by generally
accepted accounting principles and, the costs and expenses to which Tenant shall
contribute each year shall include only such year's allocable portion of the
amount of said capital item.
The Factor: As defined in Section (B) above.
(2) During the Term Tenant shall pay to Landlord, as additional rent, an
amount equal to the Operating Expenses for each Operating Year multiplied by the
Factor, such amount to be apportioned on a per diem basis for any fraction of an
Operating Year contained within the Term. Payment on account of Tenant's share
of Operating Expenses shall be paid, as part of Tenant's total rent, monthly,
and at the times and in the fashion herein provided for the payment of Fixed
Rent. For an initial period from the Commencement Date until the end of the
Operating Year during which the Term shall commence, the amount so to be paid
shall be $2,190.00 per month being the monthly payment fixed by Landlord on or
about the Commencement Date. Promptly after the end of said partial Operating
Year and promptly after the end of each Operating Year thereafter, Landlord
shall make a determination of Tenant's share of said Operating Expenses; and if
the aforesaid payments theretofore made for such period by Tenant exceed
Tenant's share, such overpayment shall be credited against the payments
thereafter to be made by Tenant pursuant to this Section (C) or refunded to
Tenant at the expiration of the Term; and if Tenant's share is greater than such
payments theretofore made on account for such period, Tenant shall make a
suitable payment to Landlord. The initial monthly
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payment on account of Operating Expenses shall be replaced after Landlord's
determination of Tenant's share thereof for the preceding Operating Year by a
payment which is one-twelfth (1/12) of Tenant's actual share thereof for the
immediately preceding Operating Year, with adjustments as appropriate where such
Operating Year is less than a full twelve-month period. Landlord agrees that
upon the request of Tenant it will give Tenant a copy of the invoices evidencing
said Operating Expenses together with a statement in reasonable detail computing
Tenant's share thereof.
(3) In the event of any taking of the Building under circumstances whereby
this lease shall not terminate, the Factor shall be appropriately adjusted to
reflect any change in the Rentable Floor Area of Tenant's Space and/or the Total
Rentable Floor Area of The Building.
(D) ADDITIONAL RENT - ELECTRICITY AND GAS
(1) The demised premises shall have an electric meter measuring the
electricity consumed in the demised premises and a gas meter measuring the gas
consumed therein. Commencing upon Tenant's entry into the demised premises to
perform Tenant's work, Tenant shall pay to the utility companies furnishing such
electricity and gas, promptly upon the receipt of bills therefor, the cost of
all electricity and gas consumed in the demised premises.
(2) Tenant's use of electricity in the demised premises shall not at any
time exceed the capacity of any of the electrical conductors or equipment in or
otherwise serving the demised premises.
ARTICLE VI
TENANT'S COVENANTS
6. TENANT'S COVENANTS DURING THE TERM.
Tenant covenants during the Term and such other time as Tenant occupies any
part of the demised premises:
(1) To pay when due (a) all Fixed Rent and additional rent, (b) all taxes
which may be imposed on Tenant's personal property in the demised premises
(including, without limitation, Tenant's fixtures and equipment) regardless to
whomever assessed, and (c) all charges by any public utility for telephone and
other utility services rendered to the demised premises but which are not made
Landlord's responsibility in Section (D) of Article V hereof. Tenant shall
provide adequate heat to the demised premises to prevent the freezing and/or
bursting of any pipes or duct work therein;
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(2) Except as otherwise provided in Article VIII and Subsection (2) of
Section (A) of Article IV, to keep the demised premises in good order, repair
and condition, reasonable wear only excepted; and at the expiration or
termination of this lease peaceably to yield up the demised premises and all
changes and additions therein in such order, repair and condition, first
removing all goods and effects of Tenant and those claiming under Tenant and any
items the removal of which is required by any agreement between Landlord and
Tenant (or specified therein to be removed at Tenant's election and which Tenant
elects to remove), and repairing all damage caused by such removal and restoring
the demised premises and leaving them clean and neat. Notwithstanding anything
to the contrary contained herein, Tenant shall forthwith remove from the demised
premises (repairing any damage caused by such removal) any installations,
alterations, additions or improvements made by Tenant or Landlord including,
without limitation, any installations, alterations, additions or improvements
made as part of Landlord's Required Work or as part of Tenant's work, and which
Landlord requests Tenant to remove at the time Tenant obtains Landlord's
approval for the installation of same, such removal to include returning the
previously modified portions of the demised premises to their condition prior to
the making of such installations, alterations, additions or improvements.
Tenant's obligations hereunder shall survive the expiration or termination of
the term of this lease. For purposes of this Section (2) the word "repairs"
includes the making of replacements when necessary.
(3) To use and occupy the demised premises only for the Permitted Use; and
not to injure or deface the demised premises, Building, or Lot; and not to
permit in the demised premises any auction sale, nuisance, or the emission from
the demised premises of any objectionable noise or odor; nor any use thereof
which is improper, offensive, contrary to law or ordinances, or liable to
invalidate or increase the premiums for any insurance on the Building (or any
portion thereof) or its contents, or liable to render necessary any alteration
or addition to the Building;
(4) To comply with the rules and regulations set forth in Exhibit E and
all other reasonable rules and regulations hereafter made by Landlord (but only
after copies thereof have been delivered to Tenant) for the care and use of the
Building and Lot and their facilities and approaches, it being expressly
understood, however, that Landlord shall not be liable to Tenant for the failure
of other tenants of the Building to conform to such rules and regulations.
Landlord agrees that it shall not discriminate against Tenant in enforcing said
rules and regulations;
(5) To keep the demised premises equipped with all safety appliances
required by law or ordinance or any other regulation of any public authority
and/or any insurance inspection or rating bureau having jurisdiction, and to
procure all licenses and permits required because of any use made by Tenant and,
if requested by Landlord, to do any work required because of such use, it being
understood that the foregoing provisions shall not be construed to broaden in
any way the Permitted
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Use. Landlord agrees that the demised premises shall be
delivered in compliance with applicable law. If any work is required in order
for Tenant to obtain a building permit and as a direct consequence of Tenant's
work, Tenant shall perform all such work at Tenant's cost and expense;
(6) Not without the prior written consent of Landlord to assign,
hypothecate, pledge or otherwise encumber this lease, to make any sublease or to
permit occupancy of the demised premises or any part thereof by anyone other
than Tenant, voluntarily or by operation of law, and as additional rent, to
reimburse Landlord promptly upon demand for reasonable legal and other expenses
incurred by Landlord in connection with any request by Tenant for consent to
assignment or subletting. Without intending to limit Landlord's discretion in
granting or withholding such consent, it is agreed that if Tenant requests
Landlord's consent to assign this lease or sublet more than thirty five percent
(35%) of the demised premises, Landlord shall have the option, exercisable by
written notice to Tenant given within sixty days after receipt of such request,
to terminate this lease as of a date specified in such notice which shall be not
less than thirty or more than sixty days after the date of such notice. If
Landlord shall so terminate this lease, rent shall be apportioned as of the date
of termination, and Landlord may lease the demised premises or any part thereof
to any person or entity (including without limitation, Tenant's proposed
assignee or subtenant, as the case may be) without any liability whatsoever to
Tenant by reason thereof. If Landlord shall consent to any assignment of this
lease by Tenant or a subletting of the whole of the demised premises by Tenant
at a rent which exceeds the rent payable hereunder by Tenant, or if Landlord
shall consent to a subletting of a portion of the demised premises by Tenant at
a rent in excess of the subleased portion's pro rata share of the rent payable
hereunder by Tenant, then Tenant shall pay to Landlord, as additional rent
forthwith upon Tenant's receipt of each installment of any such excess rent,
half (1/2) the amount of any such excess rent. Each request by Tenant for
permission to assign this lease or to sublet the whole or any part of the
demised premises shall be accompanied by a warranty by Tenant as to the amount
of rent to be paid to Tenant by the proposed assignee or sublessee. For
purposes of this Section (6), the term "rent" shall mean all fixed rent,
additional rent or other payments and/or consideration payable by one party to
another for the use and occupancy of premises. Tenant agrees, however, that
neither it nor anyone claiming under it shall enter into any sublease, license,
concession or other agreement for use, occupancy or utilization
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of space in the demised premises which provides for rental or other payment for
such use, occupancy or utilization based, in whole or in part, on the net income
or profits derived by any person or entity from the space leased, used, occupied
or utilized (other than an amount based on a fixed percentage or percentages of
receipts or sales), and Tenant agrees that any such purported sublease, license,
concession or other agreement shall be absolutely void and ineffective as a
conveyance of any right or interest in the possession, use, occupancy, or
utilization of any part of the demised premises. Tenant further agrees that any
sublease, license, concession or agreement for use, occupancy or utilization of
space in the demised premises entered into by it or by anyone claiming under it
shall contain the provisions set forth in the immediately preceding sentence.
Landlord hereby agrees, however, that Tenant may assign its interest in this
lease or sublet the whole of the demised premises to (a) an entity which owns
all of the outstanding stock of Tenant ("Tenant's Parent"); (b) an entity wholly
owned by Tenant or by Tenant's Parent ("a Subsidiary"); (c) an entity resulting
from the consolidation or merger of Tenant with any other entity; or (d) an
entity to whom Tenant shall sell all or substantially all of Tenant's assets or
stock. Notwithstanding the foregoing provisions, if the assignment or subletting
is to a Subsidiary, said assignment or subletting shall be valid only for such
period of time as said Subsidiary is wholly owned by Tenant or Tenant's Parent.
In the event that Tenant or Tenant's Parent shall ever sell or otherwise
transfer any interest in said Subsidiary to another person or entity, unless
Landlord shall have specifically assented thereto the same shall be deemed to be
a material breach of this lease.
(7) To defend Landlord with counsel reasonably acceptable to Landlord,
save Landlord harmless from, and indemnify Landlord against any liability for
injury, loss, accident or damage to any person or property and from any claims,
actions, proceedings and expenses and costs in connection therewith (including,
without implied limitation, reasonable counsel's fees): (i) arising from the
omission, fault, wilful act, negligence or other misconduct of Tenant or anyone
claiming under Tenant, or from any use made or thing done or occurring upon or
about the demised premises but not due to the omission, fault, willful act,
negligence or other misconduct of Landlord, or (ii) resulting from the failure
of Tenant to perform and discharge its covenants and obligations under this
lease;
(8) To maintain public liability insurance upon the demised premises in
amounts which shall, at the beginning of the Term, be at least equal to
$2,000,000.00 for bodily injury or death to one or more individuals and
$500,000.00 for damage to property, and from time to time during the Term, shall
be for such higher limits, if any, as are customarily carried in the area in
which the demised premises are located upon property similar in type and use to
the demised premises. Such insurance shall name Landlord as an additional
insured. Tenant shall deliver to Landlord the policies of such insurance, or
certificates thereof, at least fifteen (15) days prior to the Commencement Date,
and each renewal policy or certificate thereof, at least fifteen (15) days prior
to the expiration of the policy it renews. Each such policy shall be written by
a responsible insurance company authorized to do business in the state in which
the Building is located and shall provide that the same shall not be modified or
terminated without at least twenty (20) days' prior written notice to each named
insured;
(9) To keep all employees working in the demised premises covered by
workmen's compensation insurance in amounts required by law, and to furnish
Landlord with certificates thereof;
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(10) To permit Landlord and its agents entry upon reasonable prior notice
and during normal business hours (except in the case of an emergency, when
Landlord may enter at any time), to examine the demised premises at reasonable
times and, if Landlord shall so elect, to make repairs, alterations and
replacements; to remove, at Tenant's expense, any changes, additions, signs,
curtains, blinds, shades, awnings, aerials, flagpoles, or the like not consented
to in writing; and to show the demised premises to prospective tenants during
the twelve (12) months preceding the expiration of the Term and to prospective
purchasers and mortgagees at all reasonable times;
(11) Not to place a load upon any part of the floor of the demised premises
exceeding that for which said floor was designed or in violation of what is
allowed by law; and not to move any safe, vault or other heavy equipment in,
about or out of the demised premises except in such manner and at such times as
Landlord shall approve in writing in each instance. Tenant's business machines
and mechanical equipment which cause vibration or noise that may be transmitted
to the Building structure or to any other space in the Building shall be placed
and maintained by Tenant in settings of cork, rubber, spring, or other types of
vibration eliminators sufficient to confine such vibration or noise to the
demised premises;
(12) All the furnishings, fixtures, equipment, effects and property of
every kind, nature and description of Tenant and of all persons claiming by,
through or under Tenant which, during the continuance of this lease or any
occupancy of the demised premises by Tenant or anyone claiming under Tenant, may
be on the demised premises or elsewhere in the Building or on the Lot shall be
at the sole risk and hazard of Tenant, and if the whole or any part thereof
shall be destroyed or damaged by fire, water or otherwise, or by the leakage or
bursting of water pipes, steam pipes, or other pipes, by theft, or from any
other cause, no part of said loss or damage is to be charged to or to be borne
by Landlord, unless caused by negligence or willful misconduct of Landlord, its
agents, servants, contractors or employees;
(13) To pay promptly when due the entire cost of any work done on the
demised premises by Tenant and those claiming under Tenant; not to cause or
permit any liens for labor or material performed or furnished in connection
therewith to attach to the demised premises; and to discharge within thirty (30)
days any such liens which may so attach;
(14) Not to make any alterations, improvements, changes or additions to the
demised premises without Landlord's prior written consent. Landlord hereby
approves the making by Tenant of interior alterations to the demised premises
provided same (i) do not affect the structure of the demised premises or the
Building which contains the demised premises; and (ii) do not affect the common
utility lines or other mechanical systems of the Building which includes the
demised premises;
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(15) To pay to Landlord two (2) times the total of the Fixed Rent and
additional rent then applicable for each month or portion thereof that Tenant
shall retain possession of the demised premises or any part thereof after the
termination this lease, whether by lapse of time or otherwise, and also to pay
all damages sustained by Landlord on account thereof; however, the provisions of
this subsection shall not operate as a waiver by Landlord of any right of re-
entry provided in this lease or as a matter of law;
(16) To insure the contents, equipment, and improvements of Tenant and
those claiming under Tenant, under policies covering at least fire and the
standard extended coverage risks, in amounts equal to the replacement cost
thereof, the terms of which policies shall provide that such insurance shall not
be canceled without at least twenty (20) days' prior written notice to Landlord.
Copies of such insurance policy or policies, or certificates there of, shall be
delivered to Landlord at least fifteen (15) days prior to the Commencement Date
and each renewal policy or certificate thereof, at least fifteen (15) days prior
to the expiration of the policy it renews;
(17) The losing party shall pay the other party's expenses, including
reasonable attorney's fees, incurred in enforcing any obligation of the losing
party in this lease; and
(18) To obtain and maintain in full force and effect a heating and air
conditioning equipment service contract which shall provide for the periodic
inspection and maintenance of the heating and air conditioning equipment
servicing the demised premises. Said contract shall be made with a reputable
contractor and shall be subject to Landlord's approval, which approval Landlord
agrees not unreasonably to withhold. Copies of said contract and any renewals
and/or replacements thereof shall be delivered to Landlord.
ARTICLE VII
DEFAULT
7. (A) EVENTS OF DEFAULT
(1) If Tenant shall default in the payment of Fixed Rent, additional rent
or other payments required of Tenant, and if Tenant shall fail to cure said
default within ten (10) days after receipt of notice of said default from
Landlord, or (2) if Tenant shall default in the performance or observance of any
other agreement or condition on its part to be performed or observed and if
Tenant shall fail to cure said default within thirty (30) days after receipt of
notice of said default from Landlord (but if longer than thirty (30) days shall
be reasonably required to cure said default, then if Tenant shall fail to
commence the curing of such default within thirty (30) days after receipt of
said notice and diligently prosecute the curing thereof to completion), or (3)
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if any persons shall levy upon, or take this leasehold interest or any part
thereof upon execution, attachment or other process of law, or (4) if Tenant or
Guarantor shall make an assignment of its property for the benefit of creditors,
or (5) if Tenant or Guarantor shall be declared bankrupt or insolvent according
to law, or (6) if any bankruptcy or insolvency proceedings shall be commenced by
or against Tenant or Guarantor and, if against, if not discharged within sixty
(60) days, (7) if a receiver, trustee or assignee shall be appointed for the
whole or any part of Tenant's or Guarantor's property, or (8) if the letter of
credit is not renewed, and not replaced within five (5) days of notification of
nonrenewal, then in any of said cases, Landlord lawfully may immediately, or at
any time thereafter, and without any further notice or demand, enter into and
upon the demised premises or any part thereof in the name of the whole, by force
or otherwise, and hold the demised premises as if this lease had not been made,
and expel Tenant and those claiming under it and remove its or their property
(forcibly, if necessary) without being taken or deemed to be guilty of any
manner of trespass (or Landlord may send written notice to Tenant of the
termination of this lease), and upon entry as aforesaid (or in the event that
Landlord shall send Tenant notice of termination as above provided, on the fifth
day next following the date of the sending of the notice), the term of this
lease shall terminate. Notwithstanding the provisions of clauses (1) and (2) of
the immediately preceding sentence, if Landlord shall have rightfully given
Tenant notice of default pursuant to either or both of said clauses twice during
any twelve-month period, and if Tenant shall thereafter default in the payment
of Fixed Rent, additional rent or other payments and/or the performance or
observance of any other agreement or condition required of Tenant, then Landlord
may exercise the right of termination provided for it in said immediately
preceding sentence without first giving Tenant notice of such default and the
opportunity to cure the same within the time provided in said clause (1) and/or
clause (2), as the case may be. Tenant hereby expressly waives any and all
rights of redemption granted by or under any present or future laws in the event
of Tenant being evicted or dispossessed for any cause, or in the event Landlord
terminates this lease as provided in this Article.
(B) OBLIGATIONS THEREAFTER
In case of any such termination, Tenant will indemnify Landlord each month
against all loss of Fixed Rent and additional rent and against all obligations
which Landlord may incur by reason of any such termination between the time of
termination and the expiration of the Term; or at the election of Landlord,
exercised at the time of termination or at any time thereafter, Tenant will
indemnify Landlord each month until the exercise of the election against all
loss of Fixed Rent and additional rent and against all obligations which
Landlord may incur by reason of such termination during the period between the
time of the termination and the exercise of the election, and upon the exercise
of the election Tenant will pay to Landlord as damages such amount as at the
time of the exercise of the election represents the amount by which the rental
value of the demised premises for the
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period from the exercise of the election until the expiration of the Term shall
be less than the amount of rent and other payments provided herein to be paid by
Tenant to Landlord during said period. It is understood and agreed that at the
time of the termination or at any time thereafter Landlord may rent the demised
premises, and for a term which may expire before or after the expiration of the
Term, without releasing Tenant from any liability whatsoever, that Tenant shall
be liable for any expenses incurred by Landlord in connection with obtaining
possession of the demised premises, with removing from the demised premises
property of Tenant and persons claiming under it (including warehouse charges),
with putting the demised premises into good condition for reletting, and with
any reletting, including, but without limitation, reasonable attorneys' fees and
brokers fees, and that any monies collected from any reletting shall be applied
first to the foregoing expenses and then to the payment of Fixed Rent,
additional rent and all other payments due from Tenant to Landlord. Landlord
agrees that it shall use reasonable efforts to mitigate its damages. For
purposes of the foregoing, "reasonable efforts" shall mean only the listing of
the demised premises for lease with at least one (1) broker in the area in which
the demised premises are located.
ARTICLE VIII
CASUALTY AND TAKING
8. (A) CASUALTY AND TAKING
In case during the Term all or any substantial part of the demised
premises, the Building, or Lot or any one or more of them, are damaged by fire
or any other casualty or by action of public or other authority or are taken by
eminent domain, this lease shall terminate at Landlord's election, which may be
made notwithstanding Landlord's entire interest may have been divested, by
notice given to Tenant within thirty days after the occurrence of the event
giving rise to the election to terminate. Said notice shall, in the case of
damage as aforesaid, specify the effective date of termination which shall be
not less than thirty nor more than sixty days after the date of notice of such
termination. In the case of any such taking by eminent domain, the effective
date of the termination shall be the day on which the taking authority shall
take possession of the taken property. Fixed Rent and additional rent shall be
apportioned and adjusted as of the effective date of any such termination. If
in any such case the demised premises are rendered unfit for use and occupation
and this lease is not so terminated, Landlord shall use due diligence to put the
demised premises, or, in the case of a taking, what may remain thereof
(excluding any items which Tenant may be required or permitted to remove from
the demised premises at the expiration of the Term) into proper condition for
use and occupation, but Landlord shall not be required to spend more than the
net proceeds of insurance or award of damages it receives therefor, and a just
proportion of the Fixed Rent and additional rent according to the nature and
extent of the injury to the demised premises shall be abated until the demised
premises or such remainder shall have
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been put by Landlord in such condition; and in case of a taking which
permanently reduces the area of the demised premises, a just proportion of the
Fixed Rent shall be abated for the remainder of the Term. If there shall be
damage or destruction to the demised premises by fire or other casualty which
shall not be repaired or restored by Landlord within a period of nine (9) months
after the date of such damage or destruction, then Tenant, as Tenant's sole
remedy, may terminate the Term of this lease by a notice to Landlord within
sixty (60) days after the expiration of such nine (9) month period; provided
that said repair or restoration shall not have been completed prior to the
receipt by Landlord of said notice.
(B) RESERVATION OF AWARD
Landlord reserves to itself any and all rights to receive awards made for
damage to the demised premises, Building or Lot and the leasehold hereby
created, or any one or more of them, accruing by reason of any exercise of the
right of eminent domain or by reason of anything done in pursuance of public or
other authority. Tenant hereby releases and assigns to Landlord all of Tenant's
rights to such awards, and covenants to deliver such further assignments and
assurances thereof as Landlord may from time to time request. It is agreed and
understood, however, that Landlord does not reserve to itself, and Tenant does
not assign to Landlord, any damages payable for (1) movable equipment installed
by Tenant or anybody claiming under Tenant at its own expense or (ii) relocation
expenses, but in each case only if and to the extent that such damages are
recoverable by Tenant from such authority in a separate action and without
reducing Landlord's award of damages.
ARTICLE IX
MORTGAGEE
9. (A) SUBORDINATION TO MORTGAGES
It is agreed that the rights and interest of Tenant under this lease shall
be: (i) subject and subordinate to the lien of any present or future first
mortgage and to any and all advances to be made thereunder, and to the interest
thereon, upon the demised premises or any property of which the demised premises
are a part, if the holder of such mortgage shall elect, by notice to Tenant, to
subject and subordinate the rights and interest of Tenant under this lease to
the lien of its mortgage; or (ii) prior to the lien of any present or future
first mortgage, if the holder of such mortgage shall elect, by notice to Tenant,
to give the rights and interest of Tenant under this lease priority to the lien
of its mortgage. It is understood and agreed that the holder of such mortgage
may also elect, by notice to Tenant, to make some provisions hereof subject and
subordinate to the lien of its mortgage while granting other provisions hereof
priority to the lien of its mortgage. In the event of any of such elections,
and upon notification by the holder of such mortgage to that effect,
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<PAGE>
the rights and interest of Tenant under this lease shall be deemed to be
subordinate to, or to have priority over, as the case may be, the lien of said
mortgage, irrespective of the time of execution or time of recording of any such
mortgage. Tenant agrees that it will, upon request of Landlord, execute,
acknowledge and deliver any and all instruments deemed by Landlord necessary or
desirable to evidence or to give notice of such subordination or priority. The
word "mortgage" as used herein includes mortgages, deeds of trust or other
similar instruments and modifications, consolidations, extensions, renewals,
replacements and substitutes thereof. Whether the lien of any mortgage upon the
demised premises or any property of which the demised premises are a part shall
be superior or subordinate to this lease and the lien hereof, Tenant agrees that
it will, upon request, attorn to the holder of such mortgage or anyone claiming
under such holder and their respective successors and assigns in the event of
foreclosure of or similar action taken under such mortgage. Tenant further
agrees that it shall not subordinate its interest in this lease to the lien of
any junior mortgage, security agreement or lease affecting the demised premises,
unless the holder of the first mortgage upon the demised premises or property
which includes the demised premises shall consent thereto. Notwithstanding
anything to the contrary contained in this Article 9, Tenant shall not be
required to subordinate this lease and the lien hereof to the lien of any
mortgage unless the holder of such mortgage shall enter into an agreement with
Tenant, recordable in form, to the effect that in the event of foreclosure of,
or similar action taken under, such mortgage, Tenant's possession of the demised
premises shall not be terminated or disturbed by such mortgage holder or anyone
claiming under such mortgage holder so long as Tenant shall not be in default
under this lease. Landlord agrees that it shall use its best efforts to obtain
such an agreement from the present mortgagee of the Building. Best efforts shall
not require Landlord to expend any money.
(B) LIMITATION ON MORTGAGEE'S LIABILITY
Upon entry and taking possession of the mortgaged premises for any purpose,
the holder of a mortgage shall have all rights of Landlord, and during the
period of such possession Landlord, not such mortgage holder, shall have the
duty to perform all of Landlord's obligations hereunder. No such holder shall
be liable, either as a mortgagee or as holder of a collateral assignment of this
lease, to perform, or be liable in damages for failure to perform, any of the
obligations of Landlord unless and until such holder shall succeed to Landlord's
interest herein through foreclosure of its mortgage or the taking of a deed in
lieu of foreclosure, and thereafter such mortgage holder shall not be liable for
the performance of any of Landlord's obligations hereunder, except for the
performance of those obligations which arise during the period of time that such
mortgage holder holds Landlord's right, title and interest in this lease, such
liability to be limited to the same extent as Landlord's liability is limited
pursuant to Section 10(E) hereof.
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<PAGE>
(C) NO RELEASE OR TERMINATION
No act or failure to act on the part of Landlord which would entitle Tenant
under the terms of this lease, or by law, to be relieved of any of Tenant's
obligations hereunder or to terminate this lease, shall result in a release or
termination of such obligations or a termination of this lease unless (i) Tenant
shall have first given written notice of Landlord's act or failure to act to
Landlord's mortgagees of which Tenant has been given notice, if any, specifying
the act or failure to act on the part of Landlord which could or would be the
basis of Tenant's rights and (ii) such mortgagees, after receipt of such notice,
have failed or refused to correct or cure the condition complained of within a
reasonable time thereafter, but nothing contained in this Section (C) shall be
deemed to impose any obligation on any such mortgagee to correct or cure any
such condition. "Reasonable time" as used above means and includes a reasonable
time to obtain possession of the mortgaged premises, if the mortgagee elects to
do so, and a reasonable time to correct or cure the condition. Finally, Tenant
agrees that so long as any present or future mortgage shall remain in effect
Tenant shall not alter, modify, amend, change, surrender or cancel this lease
nor pay the rent due hereunder in advance for more than thirty (30) days, except
as may be required herein, without the prior written consent of the holder
thereof, and Tenant will not seek to be made an adverse or defendant party in
any action or proceeding brought to enforce or foreclose such mortgage.
ARTICLE X
GENERAL PROVISIONS
10. (A) CAPTIONS
The captions of the Articles are for convenience and are not to be
considered in construing this lease.
(B) SHORT FORM LEASE
Upon request of either party both parties shall execute and deliver a short
form of this lease in form appropriate for recording, and if this lease is
terminated before the Term expires, an instrument in such form acknowledging the
date of termination. No such short form lease shall contain any indication of
the amount of the rentals payable hereunder by Tenant.
(C) RELOCATION
Intentionally Omitted.
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<PAGE>
(D) NOTICES
All notices and other communications authorized or required hereunder shall
be in writing and shall be given by mailing the same by certified or registered
mail, return receipt requested, postage prepaid, by mailing the same by Express
Mail or by having the same delivered by a commercial delivery service such as
Federal Express, UPS, Purolator Courier and the like. If given to Tenant the
same shall be directed to Tenant at Tenant's Address or to such other person or
at such other address as Tenant may hereafter designate by notice to Landlord;
and if given to Landlord the same shall be directed to Landlord at Landlord's
Address, or to such other person or at such other address as Landlord may
hereafter designate by notice to Tenant. In the event the notice directed as
above provided shall not be received upon attempted delivery thereof to the
proper address and shall be returned by the Postal Service or delivery service
to the sender because of a refusal of receipt, the absence of a person to
receive, or otherwise, the time of the giving of such notice shall be the first
business day on which delivery was so attempted.
After receiving notice from Landlord or from any person, firm or other
entity that such person, firm or other entity holds a mortgage which includes
the demised premises as part of the mortgaged premises, no notice from Tenant to
Landlord shall be effective unless and until a copy of the same is given by
certified or registered mail to such holder, and the curing of any of Landlord's
defaults by such holder shall be treated as performance by Landlord, it being
understood and agreed that such holder shall be afforded a reasonable period of
time after the receipt of such notice in which to effect such cure.
(E) SUCCESSORS AND ASSIGNS
The obligations of this lease shall run with the land, and this lease shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors and assigns, except that the
Landlord named herein and each successive owner of Landlord's interest in this
lease shall be liable only for the obligations of Landlord accruing during the
period of its ownership. Whenever Landlord's interest in this lease is owned by
a trustee or trustees, the obligations of Landlord shall be binding upon
Landlord's trust estate, but not upon any trustee, beneficiary or shareholder of
the trust individually. Without limiting the generality of the foregoing, and
whether or not Landlord's interest in this lease is owned by a trustee or
trustees, Tenant specifically agrees to look solely to Landlord's interest in
the Building and Lot for recovery of any judgment from Landlord, it being
specifically agreed that neither Landlord, any trustee, beneficiary or
shareholder of any trust estate for which Landlord acts nor any person or entity
claiming by, through or under Landlord shall ever otherwise be personally liable
for any such judgment.
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<PAGE>
(F) NO SURRENDER
The delivery of keys to any employee of Landlord or to Landlord's agent or
any employee thereof shall not operate as a termination of this lease or a
surrender of the demised premises.
(G) WAIVERS AND REMEDIES
The failure of Landlord or of Tenant to seek redress for violation of, or
to insist upon the strict performance of any covenant or condition of this
lease, or, with respect to such failure of Landlord, any of the rules and
regulations referred to in Section 6(4), whether heretofore or hereafter adopted
by Landlord, shall not be deemed a waiver of such violation nor prevent a
subsequent act, which would have originally constituted a violation, from having
all the force and effect of an original violation, nor shall the failure of
Landlord to enforce any of said rules and regulations against any other tenant
in the Building be deemed a waiver of any such rules or regulations as far as
Tenant is concerned. Landlord agrees it shall not discriminate against Tenant
in enforcing said rules or regulations. The receipt by Landlord of Fixed Rent
or additional rent with knowledge of the breach of any covenant of this lease
shall not be deemed a waiver of such breach by Landlord unless such waiver be in
writing signed by Landlord. No consent or waiver express or implied, by
Landlord or Tenant to or of any breach of any agreement or duty shall be
construed as a waiver or consent to or of any other breach of the same or any
other agreement or duty. No acceptance by Landlord of a lesser sum than the
Fixed Rent and additional rent then due shall be deemed to be other than on
account of the earliest installment of such rent due, nor shall any endorsement
or statement on any check or any letter accompanying any check or payment as
rent be deemed as accord and satisfaction, and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance of such
installment or pursue any other remedy available to it. The specific remedies
to which Landlord may resort under the terms of this lease are cumulative and
are not intended to be exclusive of any other remedies or means of redress to
which it may be lawfully entitled in case of any breach or threatened breach by
Tenant of any provisions of this lease. In addition to the other remedies
provided in this lease, Landlord shall be entitled to the restraint by
injunction of the violation or attempted or threatened violation of any of the
covenants, conditions or provisions of this lease or to a decree compelling
specific performance of any such covenants, conditions or provisions. If any
term of this lease, or the application thereof to any person or circumstances
shall be held, to any extent, to be invalid or unenforceable, the remainder of
this lease, or the application of such term to persons or circumstances other
than those as to which it has been held invalid or unenforceable, shall not be
affected thereby, and each term of this lease shall be valid and enforceable to
the fullest extent permitted by law. If any interest to be paid by Tenant
hereunder shall exceed the highest lawful rate which
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<PAGE>
Landlord may recover from Tenant, such interest shall be reduced to such highest
lawful rate of interest.
(H) SELF-HELP
If Tenant shall at any time default in the performance of any obligation
under this lease, Landlord shall have the right, but shall not be obligated, to
enter upon the demised premises and to perform such obligation, notwithstanding
the fact that no specific provision for such performance by Landlord is made in
this lease with respect to such default. In performing such obligation,
Landlord may make any payment of money or perform any other act. All sums so
paid by Landlord (together with interest, from the time paid by Landlord until
the time Tenant repays the same to Landlord, at the Lease Interest Rate), shall
be deemed to be additional rent and shall be payable to Landlord immediately on
demand. Landlord may exercise the foregoing right without waiving any other of
its rights or releasing Tenant from any of its obligations under this lease.
(I) ESTOPPEL CERTIFICATE
Tenant and Landlord agree from time to time after the Commencement Date,
upon not less than five days' prior written request by either party, to execute,
acknowledge and deliver to the other a statement in writing certifying that this
lease is unmodified and in full force and effect; that Landlord and Tenant have
completed their required work; that Tenant has no defenses, offsets or
counterclaims against its obligations to pay the Fixed Rent and additional rent
and to perform its other covenants under this lease; that there are no uncured
defaults of Landlord or Tenant under this lease (or, if there have been any
modifications, that this lease is in full force and effect as modified and
stating the modifications, and, if there are any defenses, offsets,
counterclaims, or defaults, setting them forth in reasonable detail); and the
dates to which the Fixed Rent, additional rent and other charges have been paid.
Any such statement delivered pursuant to this Section (I) may be relied upon by
any prospective purchaser or mortgagee of premises which include the demised
premises or any prospective assignee of any such mortgagee.
(J) WAIVER OF SUBROGATION
(1) Tenant hereby releases Landlord to the extent of Tenant's insurance
coverage, from any and all liability for any loss or damage caused by fire or
any of the extended coverage casualties or any other casualty insured against,
even if such fire or other casualty shall be brought about by the fault or
negligence of Landlord or its agents, provided, however this release shall be in
force and effect only with respect to loss or damage occurring during such time
as Tenant's policies covering such loss or damage shall contain a clause to the
effect that this release shall not affect said policies or the right of Tenant
to recover thereunder. Tenant agrees that
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its fire and other casualty insurance policies will include such a clause so
long as the same is includable without extra cost, or if extra cost is
chargeable therefor, so long as Landlord pays such extra cost. If extra cost is
chargeable therefor, Tenant will advise Landlord thereof and of the amount
thereof. Landlord at its election, may pay the same, but shall not be obligated
to do so.
(2) Landlord hereby releases Tenant, to the extent of the Landlord's
insurance coverage, from any and all liability for any loss or damage caused by
fire or any of the extended coverage casualties or any other casualty insured
against, even if such fire or other casualty shall be brought about by the fault
or negligence of Tenant or its agents, provided, however, this release shall be
in force and effect only with respect to loss or damage occurring during such
time as Landlord's policies covering such loss or damage shall contain a clause
to the effect that this release shall not affect said policies or the right of
Landlord to recover thereunder. Landlord agrees that its fire and other
casualty insurance policies will include such a clause so long as the same is
includable without extra cost, or if extra cost is chargeable therefor, so long
as Tenant pays such extra cost. If extra cost is chargeable therefor, Landlord
will advise Tenant thereof and of the amount thereof. Tenant at its election
may pay the same, but shall not be obligated to do so.
(K) BROKERS
Tenant and Landlord hereby represent and warrant to the other that other
than Lynch, Murphy, Walsh & Partners and Boston Real Estate Partners ("the
Brokers") they have dealt with no other broker in connection with this lease and
there are no other brokerage commissions or other finders' fees payable in
connection herewith. Tenant hereby agrees to hold Landlord harmless from, and
indemnified against, all loss or damage (including without limitation, the cost
of defending the same) arising from any claim by any broker claiming to have
dealt with Tenant. Landlord hereby agrees to hold Tenant harmless from, and
indemnified, against all loss or damage (including without limitation, the cost
of defending the same) arising from any claim by any broker claiming to have
dealt with Landlord. Landlord shall pay the commission due the Brokers by
separate agreement.
(L) LANDLORD'S DEFAULTS
Landlord shall not be deemed to have committed a breach of any obligation
to make repairs or alterations or perform any other act unless: (1) it shall
have made such repairs or alterations or performed such other act negligently;
or (2) it shall have received notice from Tenant designating the particular
repairs or alterations needed or the other act of which there has been failure
of performance and shall have failed to make such repairs or alterations or
performed such other act within a reasonable time after the receipt of such
notice; and in the latter event Landlord's liability shall
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be limited to the cost of making such repairs or alterations or performing such
other act.
(M) EFFECTIVENESS OF LEASE
The submission of this lease for examination does not constitute a
reservation of, or option for, the demised premises, and this lease becomes
effective as a lease only upon execution and unconditional delivery thereof by
both Landlord and Tenant.
(N) HAZARDOUS MATERIALS
Tenant shall not (either with or without negligence) cause or permit the
escape, disposal or release of any biologically or chemically active or other
hazardous substances, or materials. Tenant shall not allow the storage or use
of such substances or materials in any manner not sanctioned by law or by the
highest standards prevailing in the industry for the storage and use of such
substances or materials, nor allow to be brought into the Lot any such materials
or substances except to use in the ordinary course of Tenant's business, and
then only after written notice is given to Landlord of the identity of such
substances or materials. Without limitation, hazardous substances and materials
shall include those described in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et
seq., the Resource Conservation and Recovery Act, as amended, 42 U.S.C Section
6901 et seq., any applicable state or local laws and the regulations adopted
under these acts. If any lender or governmental agency shall ever require
testing to ascertain whether or not there has been any release of hazardous
materials then the reasonable costs thereof shall be reimbursed by Tenant to
Landlord upon demand as additional rent if Tenant caused such release, or if
Landlord has a reasonable basis to believe that Tenant caused a release of
hazardous materials. In addition, Tenant shall execute affidavits,
representations and the like from time to time at Landlords' request concerning
Tenant's best knowledge and belief regarding the presence of hazardous
substances or materials on the demised premises. In all events, Tenant shall
indemnify Landlord in the manner elsewhere provided in this lease from any
release of hazardous materials on the demised premises occurring while Tenant is
in possession, or elsewhere if caused by Tenant or persons acting under Tenant.
The within covenants shall survive the expiration or earlier termination of the
term of this lease. Landlord agrees that it shall indemnify, defend and hold
Tenant harmless from and against any claims, suits, causes of action, costs and
fees, including attorneys' fees, arising from or connected with any
contamination, claim of contamination, loss or damage, including without
limitation the cost of treating in order to confirm the presence, containment
and/or removal of such oil, materials or waste brought onto the Lot or into the
Building prior to the date of this lease.
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<PAGE>
ARTICLE XI
SECURITY DEPOSIT
11. Simultaneously with the execution of this lease, Tenant shall deliver
to Landlord as security for the payment of the rents and the performance and
observance of the agreements and conditions in this lease combined on the part
of Tenant to be performed and observed, an irrevocable letter of credit from a
bank approved by Landlord, such letter of credit to initially be in the amount
of $92,000.00, and to expire not earlier than the thirtieth (30th) day after the
expiration of the Term of this lease. Said letter of credit shall expressly
state that it is assignable by landlord to any subsequent holder of the
landlord's interest in this lease (including, without limitation, the holder of
any mortgage upon the Shopping Center). Said letter of credit shall provide that
Landlord may draw against the same upon the presentation to the bank of
Landlord's draft and a certification on behalf of Landlord that Tenant is in
default in the payment of any rents and/or the performance and observance of any
of the agreements and conditions in this lease contained on the part of Tenant
to be performed and observed. There shall be no other conditions whatsoever to
Landlord's right to draw against said letter of credit. Landlord agrees that
provided Tenant is not in default beyond any applicable cure period in the
payment of rents and the performance and observance of the agreements and
conditions in this lease contained on the part of Tenant to be performed and
observed, said letter of credit may be replaced, commencing on the thirteenth
(13th) month of the Term by a letter of credit in the amount of Sixty Nine
Thousand Dollars ($69,000.00); and provided Tenant is not in default, as
aforesaid, beyond any applicable cure period, said replacement letter of credit
may also be replaced, commencing with the twenty fifth (25th) month of the Term,
by a letter of credit in the amount of Forty-Six Thousand Dollars ($46,000.00).
Each replacement letter of credit shall be in the form of the original letter of
credit. It is understood and agreed that Landlord shall always have the right to
draw down on said letter of credit, or any part thereof, as aforesaid in the
event of any such default or defaults, without prejudice to any other remedy or
remedies which Landlord may have, or Landlord may pursue any other such remedy
or remedies in lieu of drawing down on the letter of credit. If Landlord shall
draw down on said letter of credit or any part thereof as aforesaid, Tenant
shall upon demand replace the letter of credit with a letter of credit in the
original amount.
ARTICLE XII
MODIFICATION
12. In the event that any holder or prospective holder of any mortgage
which includes the demised premises as part of the mortgaged premises, shall
request any modification of any of the provisions of this lease, other than a
provision which unreasonably modifies Tenant's rights hereunder or which are
directly related to the rents or other charges payable hereunder, the duration
of the Term hereof, or
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<PAGE>
the size, use or location of the demised premises, Tenant agrees that Tenant
will enter into an amendment of this lease containing each such modification so
requested.
EXECUTED as a sealed instrument in two or more counterparts as of the day
and year first above written.
LANDLORD:
BerCar II LLC, BY ITS MANAGERS:
ALTID ENTERPRISES LIMITED
PARTNERSHIP
By /s/ Raymond A. Carye
----------------------------
Raymond A. Carye, General
Partner
By /s/ Barbara F. Carye
----------------------------
Barbara F. Carye, General
Partner
BERKELEY INVESTMENTS, INC.
By /s/ Young K. Park
----------------------------
Young K. Park, President
TENANT:
SYCAMORE NETWORKS, INC.
By /s/ Daniel Smith
----------------------------
ATTEST:
By /s/ John Dowling
----------------------------
(Corporate Seal)
-26-
<PAGE>
EXHIBIT A
PLAN
<PAGE>
EXHIBIT B
INTENTIONALLY OMITTED
<PAGE>
EXHIBIT C
INTENTIONALLY OMITTED
<PAGE>
EXHIBIT D
LANDLORD'S SERVICES
Landlord shall cause the paved portions of the Lot and sidewalks to be kept
reasonably free and clear of snow, ice and refuse and shall cause the landscaped
areas (if any) of the Lot to be maintained in a reasonably attractive
appearance.
<PAGE>
EXHIBIT E
RULES AND REGULATIONS
1. The sidewalks, paved and/or landscaped areas shall not be obstructed
or encumbered by Tenant or used for any purpose other than ingress and egress to
and from the demised premises.
2. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by Tenant on any part of the demised premises or
Building so as to be visible from outside the demised premises without the prior
written consent of Landlord. All such signs shall comply with the sign criteria
set forth in Exhibit G attached to this lease and made a part hereof. In the
event of the violation of this paragraph, Landlord may remove same without any
liability, and may charge the expense incurred in such removal to Tenant, as
additional rent.
3. No awnings, curtains, blinds, shades, screens or other projections
shall be attached to or hung in, or used in connection with, any window of the
demised premises or any outside wall of the Building without the prior written
consent of Landlord. Such awnings, curtains, blinds, shades, screens or other
projections must be of a quality, type, design and color, and attached in the
manner, approved by Landlord. If any portion of the demised premises which is
not used for office purposes shall have windows, such windows shall be equipped
with curtains, blinds or shades approved by Landlord, and said curtains, blinds
or shades shall be kept closed at all times.
4. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were designed and
constructed, and no sweepings, rubbish, rags, acids, chemicals, process water,
cooling water or like substances shall be deposited therein. Said plumbing
fixtures and the plumbing system of the Building shall be used only for the
discharge of so-called sanitary waste. All damage resulting from any misuse of
said fixtures and/or plumbing system by Tenant or anyone claiming under Tenant
shall be borne by Tenant.
5. Tenant must, upon the termination of its tenancy, return to Landlord
all locks, cylinders and keys to the demised premises and any offices therein.
6. Tenant shall keep any sidewalks and planters in front of the demised
premises reasonably free and clear of litter and refuse regardless of the source
thereof, in the event that litter and/or refuse shall be deposited thereon
between the times of Landlord's regularly scheduled maintenance of said
sidewalks and planters.
7. Tenant shall, at Tenant's expense, provide artificial light and
electric current for the employees of Landlord and/or Landlord's contractors
while making repairs or alterations in the demised premises.
<PAGE>
8. Tenant shall not make, or permit to be made, any unseemly or
disturbing odors or noises or disturb or interfere with occupants of the
Building or those having business with them, whether by use of any musical
instrument, radio, machine, or in any other way.
9. Canvassing, soliciting, and peddling in the Building are prohibited
and Tenant shall cooperate to prevent the same.
10. Tenant shall keep the demised premises free at all times of pests,
rodents and other vermin, and Tenant shall keep all trash and rubbish stored in
containers of a type approved by Landlord, such containers to be kept at
locations designated by Landlord. Tenant shall cause such containers to be
emptied whenever necessary to prevent them from overflowing or from producing
any objectionable odors.
11. Landlord reserves the right to rescind, alter, waive and/or establish
any rules and regulation, which, in its judgment, are necessary, desirable or
proper for its best interests and the best interests of the occupants of the
Building.
12. The access roads, driveways, entrances and exits shall not be
obstructed or encumbered by Tenant or used for any purpose other than ingress
and egress.
<PAGE>
EXHIBIT F
LEGAL DESCRIPTION OF LOT
Beginning at an iron rod at the northeasterly corner of the herein
described premises, which point is the southeasterly corner of the land
described in a deed given by Orion L. Woodbury et al to New England Power
Company, dated May 28, 1954, and recorded with Middlesex North District Deeds,
Book 1257, Page 510; thence running south 78 degrees 30 feet west by land of
said New England Power Company, sixteen hundred ninety-seven and 72/100
(1,697.72) feet to a stone bound; July 29, 1999 thence running south 80 degrees
15 feet west by said New England Power Company land, four hundred ninety-seven
and 1/10 (497.1) feet to a pipe at land now or formerly of Edward B. Russell;
thence running southerly by said Russell land, five hundred forty-six and 6/10
(546.6) feet to a stone bound at land now or formerly of Frank A. P. Coburn;
thence running easterly along said Coburn land to a stake and stones; thence
running south 15 degrees east, two hundred forty-seven and 5/10 (247.5) feet to
a stone bound; thence running south 65 1/2 degrees east, ninety and 75/100
(90.75) feet to a stone bound; thence running north 60 degrees east, seventeen
hundred thirty-two and 5/10 (1,732.5) feet to said Mill Road; thence running
northerly along said Road to the point of beginning.
<PAGE>
EXHIBIT G
SIGN CRITERIA
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated July 29, 1999, relating to the financial statements of Sycamore
Networks, Inc., which appears in such Registration Statement. We also consent to
the references to us under the headings "Experts" and "Selected Financial Data"
in such Registration Statement.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
August 5, 1999
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<PERIOD-END> JUL-31-1998 MAY-01-1999
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<CHANGES> 0 0
<NET-INCOME> (693) (10,103)
<EPS-BASIC> (1.66) (15.66)
<EPS-DILUTED> (1.66) (15.66)
</TABLE>
