<PAGE>
As filed with the Securities and Exchange Commission on September 24, 1999
Registration No. 333-84635
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 2
to
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 Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization)
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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)
---------------
Copies to:
MARK G. BORDEN, ESQ. MICHAEL D. HOCHBERG, ESQ. WILLIAM B. ASHER, JR.,
JEFFREY A. STEIN, ESQ. GENERAL COUNSEL ESQ.
HALE AND DORR LLP SYCAMORE NETWORKS, INC. TESTA, HURWITZ &
60 State Street 10 Elizabeth Drive THIBEAULT, LLP
Boston, MA 02109 Chelmsford, MA 01824 125 High Street
Telephone: (617) 526-6000 Telephone: (978) 250-2900 Boston, MA 02110
Telecopy: (617) 526-5000 Telecopy: (978) 256-3434 Telephone: (617) 248-7000
Telecopy: (617) 248-7100
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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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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
6,500,000 Shares
COMMON STOCK
-----------
Sycamore Networks, Inc. is offering 6,500,000 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
$18.00 and $20.00 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 7.
-----------
PRICE $ A SHARE
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<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 975,000 shares of common stock to cover over-allotments.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers
on , 1999.
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MORGAN STANLEY DEAN WITTER
LEHMAN BROTHERS
J.P. MORGAN & CO.
DAIN RAUSCHER WESSELS
a division of Dain Rauscher Incorporated
, 1999
<PAGE>
Gate has a center title: The Evolution of The Intelligent Optical Network. A
graphic shows the progression of a transmission among various buildings through
a system with our products. Below this is a horizontal line with the word
"Rings" on the left and "Mesh" on the right. Two bars below that show the words
Management on top and Adaptation, Transport and Switching, below.
<PAGE>
Inside front cover shows the back of a man working at a computer and Sycamore's
products in the background. The following text appears over the products: The
Art of Intelligent Optical Networking.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 4
Risk Factors........................ 7
Special Note Regarding Forward-
Looking Statements................. 17
Use of Proceeds..................... 18
Dividend Policy..................... 18
Capitalization...................... 19
Dilution............................ 20
Selected Financial Data............. 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 22
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business......................... 29
Management....................... 39
Certain Transactions............. 47
Principal Stockholders........... 48
Description of Capital Stock..... 49
Shares Eligible for Future Sale.. 52
Underwriters..................... 54
Legal Matters.................... 56
Experts.......................... 56
Where You Can Find More
Information..................... 56
Index to Financial Statements.... F-1
</TABLE>
Until , 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.
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 networking products that transport voice and data
traffic over wavelengths of light. Our products are designed to enable our
customers to quickly and cost effectively create usable network capacity over
existing fiber and thereby to create new high speed data services. Our target
customers are new and established providers of local voice and data transport
services, long distance carriers, Internet service providers, cable operators,
foreign telephone companies and carriers who provide services to other
carriers, all of which we refer to as service providers. These companies may
provide such high speed data services as access to the Internet, high speed
data connections between company sites, video conferencing and remote access to
corporate databases. We believe that the existing public network is unable to
meet the demand for high speed data transport services that are driving network
growth. As data traffic on the public network continues to grow at rates that
surpass available network capacity, we believe that service providers will
require new solutions to relieve network congestion and create new data
services.
We call our products intelligent optical networking products because they
are designed to transmit and manage data directly on wavelengths of light, for
transmission over fiber optic cable. This will improve the efficiency of the
network, because data can be moved across the network and managed entirely in
the optical medium. In contrast, the existing public network is based on a
transmission technology, known as SONET/SDH, which requires optical signals
travelling across the network to be converted into electrical signals at each
network transit point, and then re-converted into optical signals for transport
to the next transit point. The multiple conversions required in a SONET/SDH
network increase network complexity and cost. Our products are based on a
common software architecture that we believe has a number of significant
benefits, including accelerating our release of new products and enabling our
customers to upgrade their networks without significant new capital equipment
or retraining.
Prior to May 1999, we were a development stage company principally engaged
in research and development. We shipped our first product in May 1999, and all
of our revenues to date have been from sales of this product to one customer,
Williams Communications. We have incurred significant losses since our
inception and as of July 31, 1999 we had an accumulated deficit of $20.2
million.
Our products are designed to address the current and future needs of service
providers by offering an end-to-end optical networking solution that provides
the following benefits:
. Improves Network Flexibility and Scalability. Our software-based
equipment is designed to allow service providers to improve the
flexibility and the ability to expand their networks without the long
lead times and large initial capital investment presently required for a
network buildout.
. Enables Rapid Service Delivery. Our products are designed to shorten the
time it takes for service providers to increase bandwidth and provide
services.
. Facilitates Introduction of New Data Services and Creation of New Revenue
Opportunities for Service Providers. The software-based intelligence of
our products allows us to rapidly introduce new features into our
products, which can in turn be offered as new services by service
providers to their customers.
. Protects Existing Investments. Our products are designed to enable
service providers to increase the functionality and improve the
performance of their networks without sacrificing their existing
infrastructure investments in SONET/SDH equipment.
We market our products through a direct sales force and intend to establish
relationships with selected original equipment manufacturers and other
marketing partners, both domestically and internationally. In addition, we work
collaboratively with our customers and prospective customers to help them
identify and create new high speed data services that they can offer to their
customers. We believe that this assistance is an integral aspect of our sales
and marketing efforts.
4
<PAGE>
We are a Delaware corporation. Our principal executive offices are located
at 10 Elizabeth Drive, Chelmsford, Massachusetts 01824 and our telephone number
is (978) 250-2900. Our World Wide Web site address is www.sycamorenet.com. The
information in the Web site is not incorporated by reference into this
prospectus. Sycamore Networks, SN 6000, SN 8000, SilvxSource, SilvxManager, SN
16000 and SilvxONMS are our trademarks. This prospectus also contains
trademarks of other companies.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered............ 6,500,000 shares
Common stock to be outstanding
after this offering............. 77,056,337 shares
Use of proceeds................. We intend to use the net proceeds from
this offering for general corporate purposes,
including working capital and capital
expenditures, and the repayment of certain
indebtedness. See "Use of Proceeds."
Proposed Nasdaq National Market
symbol.......................... "SCMR"
</TABLE>
The above information is based upon the number of shares of common stock
outstanding as of July 31, 1999 and excludes 1,686,300 shares of common stock
issuable upon exercise of outstanding options at an average exercise price of
$1.36 per share and 18,638,700 shares of common stock reserved for future
issuance under our stock plan as of July 31, 1999.
5
<PAGE>
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
Period from Inception
(February 17, 1998) Year Ended
through July 31, 1998 July 31, 1999
--------------------- -------------
Statement of Operations Data:
<S> <C> <C>
Revenues................................... $ -- $ 11,330
Total operating expenses................... 793 22,893
Loss from operations....................... (793) (20,049)
Net loss................................... (693) (19,490)
Pro forma basic and diluted net loss per
share (unaudited)......................... $ (.04) $ (.51)
Weighted average shares used in computing
pro forma basic and diluted net loss per
share (unaudited)......................... 18,756 38,145
</TABLE>
Weighted average shares used in computing pro forma basic and diluted net
loss per share shown above exclude unvested shares of common stock subject to
repurchase rights, which totalled 5,256,000 and 12,087,000 for the period from
inception (February 17, 1998) through July 31, 1998 and year ended July 31,
1999, respectively. The pro forma as adjusted column in the balance sheet data
below gives effect to the conversion of our outstanding preferred stock into
common stock upon the closing of this offering, the sale of the 6,500,000
shares of common stock in this offering at an assumed initial public offering
price of $19.00, after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us and the anticipated
application of the estimated net proceeds.
<TABLE>
<CAPTION>
As of July 31, 1999
--------------------
Pro Forma
Actual as Adjusted
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<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and marketable securities........... $28,989 $137,693
Working capital............................................ 40,450 150,251
Total assets............................................... 57,912 166,616
Long-term obligations, less current portion................ 4,054 --
Redeemable convertible preferred stock..................... 55,771 --
Total stockholders' equity (deficit)....................... (13,623) 156,003
</TABLE>
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 47,283,225 shares of common stock upon
the closing of the offering;
. reflects a 3-for-1 stock split of the common stock effected in August
1999; and
. reflects the filing, as of the closing of the offering, of our amended
and restated certificate of incorporation and the adoption of our amended
and restated by-laws implementing certain provisions described below
under "Description of Capital Stock--Delaware Law and Certain Charter and
By-Law Provisions; Anti-Takeover Effects."
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell shares of common stock
and seeking offers to buy shares of common stock only in jurisdictions where
offers and sales are permitted. The information contained in this prospectus
is accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of the common stock.
6
<PAGE>
RISK FACTORS
This offering and an investment in our common stock involve a high degree
of risk. You should consider carefully the risks described below before you
decide to buy our common stock.
Risks Related to Our Business
We Expect That Substantially All Of Our Revenues Will Be Generated From A
Limited Number Of Customers And Our Revenues Will Not Grow If We Do Not
Successfully Sell Products To These Customers
We currently have only one customer, Williams Communications. Williams is
not contractually committed to purchase any minimum quantities of products
from us. We expect that in the foreseeable future substantially all of our
revenues will continue to depend on sales of our intelligent optical
networking products to Williams and a limited number of potential new
customers. Williams is currently using our SN 6000 product in its internal
network and plans in the future to introduce commercial services based on this
product. We cannot assure you that Williams will introduce commercial services
on a timely basis, if at all, and any delay in such introduction or failure to
introduce such services would seriously harm our revenues, results of
operations and financial condition. The rate at which our current and
prospective customers purchase products from us will depend, in part, on their
success in selling communications services based on these products to their
own customers. Any failure of current or prospective customers to purchase
products from us for any reason, including any determination not to install
our products in their networks or downturn in their business, would seriously
harm our ability to build a successful business.
We Have Been In Business For A Short Period Of Time And Your Basis For
Evaluating Us Is Limited
We were founded in February 1998 and shipped our first intelligent optical
networking product in May 1999. We have limited meaningful historical
financial data upon which to base projected revenues and planned operating
expenses and upon which investors may evaluate us and our prospects. In
addition, our operating expenses are largely based on anticipated revenue
trends and a high percentage of our expenses are and will continue to be
fixed. You should consider the risks and difficulties frequently encountered
by companies like ours in a new and rapidly evolving market. Our ability to
sell products, and the level of success, if any, we achieve, depends, among
other things, on the level of demand for intelligent optical networking
products, which is a new and rapidly evolving market.
Our Failure To Increase Our Revenues Would Prevent Us From Achieving And
Maintaining Profitability
We have incurred significant losses since inception and expect to continue
to incur losses in the future. As of July 31, 1999, we had an accumulated
deficit of $20.2 million. We have not achieved profitability on a quarterly or
annual basis, and anticipate that we will continue to incur net losses. We
cannot be certain that our revenues will grow or that we will generate
sufficient revenues to achieve or sustain profitability. We have large fixed
expenses and we expect to continue to incur significant and increasing sales
and marketing, product development, administrative and other expenses. As a
result, we will need to generate significantly higher revenues to achieve and
maintain profitability.
We Are Entirely Dependent On Our Line Of Intelligent Optical Networking
Products And Our Future Revenue Depends On Their Commercial Success
Our future growth depends on the commercial success of our line of
intelligent optical networking products. To date, our SN 6000 Intelligent
Optical Transport product is the only product that has been shipped to a
customer. We intend to develop and introduce new products and enhancements to
existing products in the future. We cannot assure you that we will be
successful in completing the development or introduction of these products.
Failure of our current or planned products to operate as expected could delay
or prevent their adoption. If our target customers do not adopt, purchase and
successfully deploy our current and planned products, our revenues will not
grow significantly.
7
<PAGE>
Because Our Products Are Complex And Are Deployed In Complex Environments,
They May Have Errors Or Defects That We Find Only After Full Deployment, Which
Could Seriously Harm Our Business
Our intelligent optical networking products are complex and are designed to
be deployed in large and complex networks. Because of the nature of the
products, they can only be fully tested when completely deployed in very large
networks with high amounts of traffic. To date, the SN 6000 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 Will Not Be Successful If We Do Not Grow Our Customer Base Beyond Our
Initial One Customer
Our future success will depend on our attracting additional customers
beyond our initial one customer. The growth of our customer base could be
adversely affected by:
. customer unwillingness to implement our new optical networking
architecture;
. any delays or difficulties that we may incur in completing the
development and introduction of our planned products or product
enhancements;
. new product introductions by our competitors;
. any failure of our products to perform as expected; or
. any difficulty we may incur in meeting customers' delivery requirements.
8
<PAGE>
The Intelligent Optical Networking Market Is New And Our Business Will
Suffer If It Does Not Develop As We Expect
The market for intelligent optical networking products is new. We cannot be
certain that a viable market for our products will develop or be sustainable.
If this market does not develop, or develops more slowly than we expect, our
business, results of operations and financial condition would be seriously
harmed.
If We Do Not Respond Rapidly To Technological Changes, Our Products Could
Become Obsolete
The market for intelligent optical networking products is likely to be
characterized by rapid technological change, frequent new product
introductions and changes in customer requirements. We may be unable to
respond quickly or effectively to these developments. We may experience
design, manufacturing, marketing and other difficulties that could delay or
prevent our development, introduction or marketing of new products and
enhancements. The introduction of new products by competitors, market
acceptance of products based on new or alternative technologies or the
emergence of new industry standards, could render our existing or future
products obsolete.
In developing our products, we have made, and will continue to make,
assumptions about the standards that may be adopted by our customers and
competitors. If the standards adopted are different from those which we have
chosen to support, market acceptance of our products may be significantly
reduced or delayed and our business will be seriously harmed. In addition, the
introduction of products incorporating new technologies and the emergence of
new industry standards could render our existing products obsolete.
In addition, in order to introduce products incorporating new technologies
and new industry standards, we must be able to gain access to the latest
technologies of our customers, our suppliers and other network vendors. Any
failure to gain access to the latest technologies could impair the
competitiveness of our products.
Customer Requirements Are Likely To Evolve, And We Will Not Retain
Customers or Attract New Customers If We Do Not Anticipate And Meet Specific
Customer Requirements
Our current and prospective customers may require product features and
capabilities that our current products do not have. To achieve market
acceptance for our products, we must effectively and timely anticipate and
adapt to customer requirements and offer products and services that meet
customer demands. Our failure to develop products or offer services that
satisfy customer requirements would seriously harm our ability to increase
demand for our products.
We intend to continue to invest in product and technology development. The
development of new or enhanced products is a complex and uncertain process
that requires the accurate anticipation of technological and market trends. We
may experience design, manufacturing, marketing and other difficulties that
could delay or prevent the development, introduction or marketing of new
products and enhancements. The introduction of new or enhanced products also
requires that we manage the transition from older products in order to
minimize disruption in customer ordering patterns and ensure that adequate
supplies of new products can be delivered to meet anticipated customer demand.
Our inability to effectively manage this transition would cause us to lose
current and prospective customers.
Our Market Is Highly Competitive, And Our Failure To Compete Successfully
Would Limit Our Ability to Increase Our Market Share
Competition in the public network infrastructure market is intense. This
market has historically been dominated by large companies, such as Ciena
Corporation, 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
9
<PAGE>
marketing, technical, manufacturing, financial, and other resources, including
vendor-sponsored financing programs. Moreover, our competitors may foresee the
course of market developments more accurately than we do and could in the
future develop new technologies that compete with our products or even render
our products obsolete. Due to the rapidly evolving markets in which we
compete, additional competitors with significant market presence and financial
resources may enter those markets, thereby further intensifying competition.
In order to compete effectively, we must deliver products that:
. provide extremely high network reliability;
. scale easily and efficiently with minimum disruption to the network;
. interoperate with existing network designs and equipment vendors;
. reduce the complexity of the network by decreasing the need for
overlapping equipment;
. provide effective network management; and
. provide a cost-effective solution for service providers.
In addition, we believe that a knowledge of the infrastructure requirements
applicable to service providers, experience in working with service providers
to develop new services for their customers, and an ability to provide vendor-
sponsored financing are important competitive factors in our market. We do not
currently have the ability to provide vendor-sponsored financing and this may
influence the purchasing decision of prospective customers, who may decide to
purchase products from one of our competitors who offers such financing.
If we are unable to compete successfully against our current and future
competitors, we could experience price reductions, order cancellations and
reduced gross margins, any one of which could materially and adversely affect
our business, results of operations and financial condition.
We Are Likely To Face Difficulties In Obtaining And Retaining Customers If
We Do Not Expand Our Sales Organization And Our Customer Service And Support
Operations
Our products and services require a sophisticated sales effort targeted at
a limited number of key individuals within our prospective customers'
organizations. This effort requires specialized sales personnel and consulting
engineers. We are in the process of building our direct sales force and plan
to hire additional qualified sales personnel and consulting engineers.
Competition for these individuals is intense, and we might not be able to hire
the kind and number of sales personnel and consulting engineers required for
us to be successful. In addition, we believe that our future success is
dependent upon our ability to establish successful relationships with a
variety of distribution partners. If we are unable to expand our direct sales
operations, or establish and expand an indirect sales channel, we may not be
able to increase market awareness or sales of our products, which may prevent
us from achieving and maintaining profitability.
We currently have a small customer service and support organization and
will need to increase our staff to support new customers. The support of our
products requires highly trained customer service and support personnel.
Hiring customer service and support personnel is very competitive in our
industry because there are a limited number of people available with the
necessary technical skills and understanding of our market. Once we hire them,
they may require extensive training in our intelligent optical networking
products. If we are unable to expand our customer service and support
organization and train them rapidly, we may not be able to increase sales of
our products.
We Depend Upon Contract Manufacturers And Any Disruption In These
Relationships May Cause Us To Fail To Meet The Demands Of Our Customers And
Damage Our Customer Relationships
We rely on a small number of contract manufacturers to manufacture our
products in accordance with our specifications, and to fill orders on a timely
basis. Celestica, Inc. provides comprehensive manufacturing services,
including assembly, test, control and shipment to our customers, and procures
material on our behalf. We may
10
<PAGE>
not be able to effectively manage our relationship with Celestica, and it may
not meet our future requirements for timely delivery. Each of our contract
manufacturers also builds products for other companies, and we cannot be
certain that they will always have sufficient quantities of inventory
available to fill orders placed by our customers, or that they will allocate
their internal resources to fill these orders on a timely basis. We do not
have long-term supply contracts with these manufacturers. We do not have
internal manufacturing capabilities. Qualifying a new contract manufacturer
and commencing volume production is expensive and time consuming and could
result in a significant interruption in the supply of our products. If we are
required or choose to change contract manufacturers, we may lose revenue and
damage our customer relationships.
We Rely On Single Sources For Supply Of Certain Components And Our Business
May Be Seriously Harmed If Our Supply Of Any Of These Components Is Disrupted
We currently purchase several key components, including commercial digital
signal processors, RISC processors, field programmable gate arrays, SONET
transceivers and erbium doped fiber amplifiers, from single or limited
sources. We purchase each of these components on a purchase order basis and
have no long-term contracts for these components. Although we believe that
there are alternative sources for each of these components, in the event of a
disruption in supply, we may not be able to develop an alternate source in a
timely manner or at favorable prices. Such a failure could hurt our ability to
deliver our products to our customers and negatively affect our operating
margins. In addition, our reliance on our suppliers exposes us to potential
supplier production difficulties or quality variations. Any such disruption in
supply would seriously impact present and future sales and revenue.
The Unpredictability Of Our Quarterly Results May Adversely Affect The
Trading Price Of Our Common Stock
Our revenues and operating results will vary significantly from quarter to
quarter due to a number of factors, many of which are outside of our control
and any of which may cause our stock price to fluctuate. The primary factors
that may affect us include the following:
. fluctuation in demand for intelligent optical networking products;
. the timing and size of sales of our products;
. the length and variability of the sales cycle for our products;
. the timing of recognizing revenue and deferred revenue;
. new product introductions and enhancements by our competitors and
ourselves;
. changes in our pricing policies or the pricing policies of our
competitors;
. our ability to develop, introduce and ship new products and product
enhancements that meet customer requirements in a timely manner;
. our ability to obtain sufficient supplies of sole or limited source
components;
. increases in the prices of the components we purchase;
. our ability to attain and maintain production volumes and quality levels
for our products;
. the timing and level of prototype expenses;
. costs related to acquisitions of technology or businesses; and
. general economic conditions as well as those specific to the
telecommunications, Internet and related industries.
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
11
<PAGE>
reporting and other administrative demands which will result from this
offering and the increasing size of our business. Our operating expenses are
largely based on anticipated organizational growth and revenue trends and a
high percentage of our expenses are, and will continue to be, fixed. As a
result, a delay in generating or recognizing revenue for the reasons set forth
above, or for any other reason, could cause significant variations in our
operating results from quarter to quarter and could result in substantial
operating losses.
Due to the foregoing factors, we believe that quarter-to-quarter
comparisons of our operating results are not a good indication of our future
performance. You should not rely on our results or growth for one quarter as
any indication of our future performance. It is likely that in some future
quarters, our operating results may be below the expectations of public market
analysts and investors. In this event, the price of our common stock will
probably decrease.
If Our Products Do Not Interoperate With Our Customers' Networks,
Installations Will Be Delayed Or Cancelled And Could Result In Substantial
Product Returns, Which Could Seriously Harm Our Business
Many of our customers will require that our products be designed to
interface with their existing networks, each of which may have different
specifications and utilize multiple protocol standards. Our customers'
networks contain multiple generations of products that have been added over
time as these networks have grown and evolved. Our products must interoperate
with all of the products within these networks as well as future products in
order to meet our customers' requirements. The requirement that we modify
product design in order to achieve a sale may result in a longer sales cycle,
increased research and development expense, and reduced margins on our
products. If we find errors in the existing software used in our customers'
networks, we must modify our products to fix or overcome these errors so that
our products will interoperate and scale with the existing software and
hardware. If our products do not interoperate with those of our customers'
networks, installations could be delayed, orders for our products could be
cancelled or our products could be returned. This would also seriously harm
our reputation, all of which could seriously harm our business and prospects.
Undetected Software Or Hardware Errors And Problems Arising From Use Of Our
Products In Conjunction With Other Vendors' Products Could Result In Delays or
Loss of Market Acceptance of Our Products
Networking products frequently contain undetected software or hardware
errors when first introduced or as new versions are released. We expect that
errors will be found from time to time in new or enhanced products after we
begin commercial shipments. In addition, service providers typically use our
products in conjunction with products from other vendors. As a result, when
problems occur, it may be difficult to identify the source of the problem.
These problems may cause us to incur significant warranty, support and repair
costs, divert the attention of our engineering personnel from our product
development efforts and cause significant customer relations problems. The
occurrence of these problems could result in the delay or loss of market
acceptance of our products and would likely have a material adverse effect on
our business, results of operations and financial condition. Defects,
integration issues or other performance problems in our products could result
in financial or other damages to our customers or could damage market
acceptance for our products. Our customers could also seek damages for losses
from us. A product liability claim brought against us, even if unsuccessful,
would likely be time consuming and costly.
Our Failure To Establish And Maintain Key Customer Relationships May Result
In Delays In Introducing New Products Or Cause Customers To Forego Purchasing
Our Products
Our future success will also depend upon our ability to develop and manage
key customer relationships in order to introduce a variety of new products and
product enhancements that address the increasingly sophisticated needs of our
customers. Our failure to establish and maintain these customer relationships
may adversely affect our ability to develop new products and product
enhancements. In addition, we may experience delays in releasing new products
and product enhancements in the future. Material delays in introducing new
products and enhancements or our inability to introduce competitive new
products may cause customers to forego purchases of our products and purchase
those of our competitors, which could seriously harm our business.
12
<PAGE>
Our Failure To Improve Our Internal Controls And Systems, And Hire Needed
Personnel, Could Impair Our Future Growth
We have expanded our operations rapidly since our inception. We continue to
increase the scope of our operations and have grown our headcount
substantially. For example, at January 31, 1999, we had a total of 48
employees and at September 1, 1999, we had a total of 173 employees. In
addition, we plan to continue to hire a significant number of employees this
year. Our growth has placed, and our anticipated growth will continue to
place, a significant strain on our management systems and resources. Our
ability to successfully offer our products and implement our business plan in
a rapidly evolving market requires an effective planning and management
process. We expect that we will need to continue to improve our financial,
managerial and manufacturing controls and reporting systems, and will need to
continue to expand, train and manage our work force worldwide. We may not be
able to implement adequate control systems in an efficient and timely manner.
Competition for highly skilled personnel is intense, especially in the New
England area. Any failure to attract, assimilate or retain qualified personnel
to fulfill our current or future needs could impair our growth.
We Depend On Our Key Personnel To Manage Our Business Effectively In A
Rapidly Changing Market And If We Are Unable To Retain Our Key Employees, Our
Ability To Compete Could Be Harmed
Our future success depends upon the continued services of our executive
officers and other key engineering, sales, marketing and support personnel,
who have critical industry experience and relationships that we rely on to
implement our business plan. None of our officers or key employees is bound by
an employment agreement for any specific term. We do not have "key person"
life insurance policies covering any of our employees. The loss of the
services of any of our key employees could delay the development and
introduction of, and negatively impact our ability to sell, our products.
If We Become Subject To Unfair Hiring Claims We Could Incur Substantial
Costs In Defending Ourselves
Companies in our industry whose employees accept positions with competitors
frequently claim that their competitors have engaged in unfair hiring
practices. We cannot assure you that we will not receive claims of this kind
in the future as we seek to hire qualified personnel or that those claims will
not result in material litigation. We could incur substantial costs in
defending ourselves or our employees against such claims, regardless of their
merits. In addition, defending ourselves from such claims could divert the
attention of our management away from our operations. One of our non-officer
sales employees has been sued by a former employer which has alleged, among
other things, that the employee improperly disclosed confidential information
of the former employer regarding its business dealings with our customer.
Although we are not a party to the lawsuit, we have chosen to assume the costs
of defending this lawsuit.
Our Ability To Compete Could Be Jeopardized If We Are Unable To Protect Our
Intellectual Property Rights From Third-Party Challenges
We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property
rights. We also enter into confidentiality or license agreements with our
employees, consultants and corporate partners, and control access to and
distribution of our software, documentation and other proprietary information.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy or otherwise obtain and use our products or technology.
Monitoring unauthorized use of our products is difficult and we cannot be
certain that the steps we have taken will prevent unauthorized use of our
technology, particularly in foreign countries where the laws may not protect
our proprietary rights as fully as in the United States. If competitors are
able to use our technology, our ability to compete effectively could be
harmed.
If Necessary Licenses Of Third-Party Technology Are Not Available To Us Or
Are Very Expensive, Our Products Could Become Obsolete
From time to time we may be required to license technology from third
parties to develop new products or product enhancements. We cannot assure you
that third party licenses will be available to us on commercially
13
<PAGE>
reasonable terms, if at all. The inability to obtain any third-party license
required to develop new products and product enhancements could require us to
obtain substitute technology of lower quality or performance standards or at
greater cost, either of which could seriously harm the competitiveness of our
products.
We Could Become Subject To Litigation Regarding Intellectual Property
Rights, Which Could Seriously Harm Our Business And Require Us To Incur
Significant Costs
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. Although we have not
been involved in any intellectual property litigation, we may be a party to
litigation in the future to protect our intellectual property or as a result
of an allegation that we infringe others' intellectual property. Any parties
asserting that our products infringe upon their proprietary rights would force
us to defend ourselves and possibly our customers or manufacturers against the
alleged infringement. These claims and any resulting lawsuit, if successful,
could subject us to significant liability for damages and invalidation of our
proprietary rights. These lawsuits, regardless of their success, would likely
be time-consuming and expensive to resolve and would divert management time
and attention. Any potential intellectual property litigation also could force
us to do one or more of the following:
. stop selling, incorporating or using our products that use the challenged
intellectual property;
. obtain from the owner of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not be
available on reasonable terms, or at all; or
. redesign those products that use such technology.
If we are forced to take any of the foregoing actions, our business may be
seriously harmed.
We May Face Risks Associated With Our International Expansion That Could
Impair Our Ability To Grow Our Revenues Abroad
We intend to expand into international markets. This expansion will require
significant management attention and financial resources to develop
successfully direct and indirect international sales and support channels. We
may not be able to develop international market demand for our products.
We have limited experience in marketing and distributing our products
internationally and to do so, we expect that we will need to develop versions
of our products that comply with local standards. In addition, international
operations are subject to other inherent risks, including:
. greater difficulty in accounts receivable collection and longer
collection periods;
. difficulties and costs of staffing and managing foreign operations;
. the impact of recessions in economies outside the United States;
. unexpected changes in regulatory requirements;
. certification requirements;
. currency fluctuations;
. reduced protection for intellectual property rights in some countries;
. potentially adverse tax consequences; and
. political and economic instability.
We Face A Number Of Unknown Risks Associated With Year 2000 Problems That
Could Result In Claims Against Us Or Impair The Use Of Our Products By Our
Customers
The year 2000 computer issue creates a variety of risks for us. The year
2000 computer problem refers to the potential for system and processing
failures of date-related data as a result of computer-controlled systems using
two digits rather than four to define the applicable year. For example,
computer programs that have time-sensitive software may recognize a date
represented as "00" as the year 1900 rather than the year 2000. This
14
<PAGE>
could result in a system failure or miscalculations causing disruptions of
operations, including among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
The risks involve:
. potential warranty or other claims by our customers;
. errors in systems we use to run our business;
. errors in systems used by our suppliers;
. errors in systems used by our customers; and
. potential reduced spending by other companies on intelligent optical
network products as a result of significant spending on year 2000
remediation.
We have designed our products for use in the year 2000 and beyond and
believe they are year 2000 compliant. However, our products are generally
integrated into larger networks involving sophisticated hardware and software
products supplied by other vendors. Each of our customers' networks involves
different combinations of third party products. We cannot evaluate whether all
of their products are year 2000 compliant. We may face claims based on year
2000 problems in other companies' products or based on issues arising from the
integration of multiple products within the overall network. Although no year
2000 claims have been made against us, we may in the future be required to
defend our products in legal proceedings which could be expensive regardless
of the merits of these claims.
If our suppliers, vendors, major distributors, partners, customers and
service providers fail to correct their year 2000 problems, these failures
could result in an interruption in, or a failure of, our normal business
activities or operations. If a year 2000 problem occurs, it may be difficult
to determine which party's products have caused the problem. These failures
could interrupt our operations and damage our relationships with our
customers. Due to the general uncertainty inherent in the year 2000 problem
resulting from the readiness of third-party suppliers and vendors, we are
unable to determine at this time whether third party year 2000 failures could
harm our business and our financial results.
Our current and prospective customers' purchasing plans could be affected
by year 2000 issues if they need to expend significant resources to fix their
existing systems to become year 2000 compliant. This situation may reduce
funds available to purchase our products. In addition, customers may wait to
purchase our products until after the year 2000, which may reduce our revenue.
Any Acquisitions We Make Could Disrupt Our Business And Seriously Harm Our
Financial Condition
We intend to consider investments in complementary companies, products or
technologies. While we have no current agreements to do so, we may buy
businesses, products or technologies in the future. In the event of any future
purchases, we could:
. issue stock that would dilute our current stockholders' percentage
ownership;
. incur debt;
. assume liabilities;
. incur amortization expenses related to goodwill and other intangible
assets; or
. incur large and immediate write-offs.
Our operation of any acquired business will also involve numerous risks,
including:
. problems combining the purchased operations, technologies or products;
. unanticipated costs;
. diversion of management's attention from our core business;
15
<PAGE>
. adverse effects on existing business relationships with suppliers and
customers;
. risks associated with entering markets in which we have no or limited
prior experience; and
. potential loss of key employees, particularly those of the purchased
organizations.
We cannot assure you that we will be able to successfully integrate any
businesses, products, technologies or personnel that we might acquire in the
future and any failure to do so could disrupt our business and seriously harm
our financial condition.
Risks Related To The Securities Markets And This Offering
Our Stock Price May Be Volatile
Prior to this offering, you could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after this offering. The market for technology stocks has been
extremely volatile. The following factors could cause the market price of our
common stock to fluctuate significantly from the price paid by investors in
this offering:
. our loss of a major customer;
. the addition or departure of key personnel;
. variations in our quarterly operating results;
. announcements by us or our competitors of significant contracts, new
products or product enhancements, acquisitions, distribution
partnerships, joint ventures or capital commitments;
. changes in financial estimates by securities analysts;
. our sales of common stock or other securities in the future;
. changes in market valuations of broadband access technology companies;
. changes in market valuations of networking and telecommunications
companies; and
. fluctuations in stock market prices and volumes.
In addition, the stock market in general, and the Nasdaq National Market
and technology companies in particular, have experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the
operating performance of such companies. The trading prices of many technology
companies' stocks are at or near historical highs and these trading prices and
multiples are substantially above historical levels. These trading prices and
multiples may not be sustained. These broad market and industry factors may
materially adversely affect the market price of our common stock, regardless
of our actual operating performance. In the past, following periods of
volatility in the market price of a company's securities, securities class-
action litigation has often been instituted against such companies. Such
litigation, if instituted, could result in substantial costs and a diversion
of management's attention and resources.
Management May Apply The Proceeds Of This Offering To Uses That Do Not
Increase Our Profits Or Market Value
Our management will have considerable discretion in the application of the
net proceeds of this offering, and you will not have the opportunity, as part
of your investment decision, to assess whether the proceeds are being used
appropriately. The net proceeds may be used for corporate purposes that do not
increase our profitability or our market value. Pending application of the
proceeds, they may be placed in investments that do not produce income or that
lose value.
Insiders Will Continue To Have Substantial Control Over Sycamore After This
Offering And Could Limit Your Ability To Influence The Outcome Of Key
Transactions, Including Changes of Control
We anticipate that the executive officers, directors and entities
affiliated with them will, in the aggregate, beneficially own approximately
65% of our outstanding common stock following the completion of this
16
<PAGE>
offering. These stockholders, if acting together, would be able to influence
significantly all matters requiring approval by our stockholders, including
the election of directors and the approval of mergers or other business
combination transactions.
Provisions Of Our Charter Documents And Delaware Law May Have Anti-Takeover
Effects That Could Prevent A Change Of Control
Provisions of our amended and restated certificate of incorporation,
bylaws, and Delaware law could make it more difficult for a third party to
acquire us, even if doing so would be beneficial to our stockholders.
There May Be Sales Of A Substantial Amount Of Our Common Stock After This
Offering That Could Cause Our Stock Price To Fall
Our current stockholders hold a substantial number of shares, which they
will be able to sell in the public market in the near future. Sales of a
substantial number of shares of our common stock within a short period of time
after this offering could cause our stock price to fall. In addition, the sale
of these shares could impair our ability to raise capital through the sale of
additional stock.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. You can identify these statements by
forward-looking words such as "anticipate," "believe," "could," "estimate,"
"expect," "intend," "may," "should," "will" and "would" or similar words. You
should read statements that contain these words carefully because they discuss
our future expectations, contain projections of our future results of
operations or of our financial position or state other "forward-looking"
information. We believe that it is important to communicate our future
expectations to our investors. However, there may be events in the future that
we are not able to accurately predict or control. The factors listed above in
the section captioned "Risk Factors," as well as any cautionary language in
this prospectus, provide examples of risks, uncertainties and events that may
cause our actual results to differ materially from the expectations we
describe in our forward-looking statements. Before you invest in our common
stock, you should be aware that the occurrence of the events described in
these risk factors and elsewhere in this prospectus could have a material
adverse effect on our business, results of operations and financial position.
17
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the 6,500,000 shares of
common stock will be approximately $113,855,000 assuming an initial public
offering price of $19.00 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 $131,083,250.
The principal purposes of this offering are to establish a public market
for our common stock, to increase our visibility in the marketplace, to
facilitate future access to public capital markets, to provide liquidity to
existing stockholders and to obtain additional working capital.
We expect to use the net proceeds for general corporate purposes, including
working capital and capital expenditures, and the repayment of outstanding
amounts under our equipment lines of credit. Other than the amounts necessary
to repay the outstanding indebtedness, no specific amounts have been allocated
to any particular purpose. Our lines of credit consist of:
. a $1.0 million equipment line of credit which was converted into a term
loan as of June 30, 1999 and is required to be repaid in 30 equal monthly
installments commencing July 1, 1999. This line of credit bears interest
at the bank's prime rate plus .5% (8.5% at July 31, 1999) per annum and
is collateralized by all of our assets. At July 31, 1999, an aggregate of
$967,000 was outstanding under this line of credit; and
. a $5.0 million equipment line of credit which will be converted into a
term loan on January 31, 2000 and which will be required to be repaid in
36 equal monthly installments commencing February 1, 2000. This line of
credit bears interest at the bank's prime rate plus .5% (8.5% at July 31,
1999) per annum and is collateralized by all of our assets. At July 31,
1999, an aggregate of $4.2 million was outstanding under this line of
credit.
Although we may use a portion of the net proceeds to acquire businesses,
products or technologies that are complementary to our business, we have no
specific acquisitions planned. Pending such uses, we plan to invest the net
proceeds in investment grade, interest-bearing securities.
DIVIDEND POLICY
We have never paid or declared any cash dividends on our common stock or
other securities and do not anticipate paying cash dividends in the
foreseeable future. Our credit agreement with a commercial bank prohibits the
payment of dividends. Any future determination to pay cash dividends will be
at the discretion of the board of directors and will be dependent upon our
financial condition, results of operations, capital requirements, general
business condition and such other factors as the board of directors may deem
relevant.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of July 31, 1999. The
pro forma information gives effect to the conversion of all of our outstanding
redeemable convertible preferred stock. The pro forma as adjusted information
reflects the issuance and sale of the 6,500,000 shares of common stock offered
by us in this offering at an assumed initial public offering price of $19.00
per share and the application of the estimated net proceeds we expect to
receive from this offering. The outstanding share information excludes: (1)
1,686,300 shares of common stock issuable upon exercise of outstanding options
as of July 31, 1999, and (2) 18,638,700 shares of common stock reserved for
future issuance under our 1998 Stock Incentive Plan as of July 31, 1999. This
table should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and other financial data
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of July 31, 1999
-------------------------------
Pro Pro Forma
Actual Forma as Adjusted
-------- -------- -----------
(in thousands, except share
data)
(unaudited)
<S> <C> <C> <C>
Long-term debt, less current portion.......... $ 4,054 $ 4,054 $ --
-------- -------- --------
Redeemable convertible preferred stock, $.01
par value; 15,792,201 authorized, 15,761,075
issued and outstanding, actual; no shares
authorized, issued and outstanding, pro forma
and pro forma as adjusted.................... 55,771 -- --
-------- -------- --------
Stockholders' equity (deficit):
Preferred Stock, $.01 par value, 5,000,000
shares authorized, 0 shares issued and
outstanding on a pro forma basis............. -- -- --
Common stock, $.001 par value; 91,000,000
shares authorized, 23,273,112 shares issued
and outstanding, actual; 70,556,337 shares
issued and outstanding, on a pro forma basis;
250,000,000 shares authorized, 77,056,337
shares issued and outstanding, on a pro forma
as adjusted basis............................ 23 71 77
Additional paid-in capital.................... 31,010 86,733 200,582
Accumulated deficit........................... (20,183) (20,183) (20,183)
Notes receivable.............................. (360) (360) (360)
Deferred compensation......................... (24,113) (24,113) (24,113)
-------- -------- --------
Total stockholders' equity (deficit)........ (13,623) 42,148 156,003
-------- -------- --------
Total capitalization...................... $ 46,202 $ 46,202 $156,003
======== ======== ========
</TABLE>
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<PAGE>
DILUTION
Sycamore's pro forma net tangible book value as of July 31, 1999, giving
effect to the conversion of all outstanding shares of redeemable convertible
preferred stock into common stock on the closing of this offering, was
approximately $42.1 million, or $.60 per share of common stock. Pro forma net
tangible book value per share represents our tangible net worth (tangible
assets less total liabilities) divided by the 70,556,337 shares of common
stock outstanding after giving effect to the conversion of all shares of
redeemable convertible preferred stock into common stock. After giving effect
to the issuance and sale of the shares of common stock offered by Sycamore in
this offering (at an assumed initial public offering price of $19.00 per
share) and the receipt and application of the net proceeds from the sale of
these shares, Sycamore's pro forma net tangible book value at July 31, 1999
would have been $156.0 million, or $2.02 per share. This represents an
immediate increase in pro forma net tangible book value to existing
stockholders of $1.42 per share and an immediate dilution to new investors of
$16.98 per share. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share $19.00
Pro forma net tangible book value per share before this
offering....................................................... $ .60
Increase in pro forma net tangible book value per share
attributable to new investors.................................. 1.42
-----
Pro forma net tangible book value per share after this offering... 2.02
------
Dilution per share to new investors............................... $16.98
======
</TABLE>
The following table summarizes on a pro forma basis, giving effect to the
conversion of all outstanding shares of redeemable convertible preferred stock
into common stock on the closing of this offering, as of July 31, 1999, the
difference between the number of shares of common stock purchased from
Sycamore, the total consideration paid to Sycamore, and the average price per
share paid by existing stockholders and by new investors (at an assumed
initial public offering price of $19.00 per share before deduction of
estimated underwriting discounts and commissions and estimated offering
expenses payable by Sycamore):
<TABLE>
<CAPTION>
Average
Shares Purchased Total Consideration Price
------------------ -------------------- Per
Number Percent Amount Percent Share
---------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 70,556,337 91.6% $ 58,733,000 32.2% $ .83
New investors................... 6,500,000 8.4 123,500,000 67.8 19.00
---------- ----- ------------ -----
Total......................... 77,056,337 100.0% $182,233,000 100.0%
===== =====
</TABLE>
The table above assumes no exercise of stock options outstanding at July
31, 1999. As of July 31, 1999, there were options outstanding to purchase
1,686,300 shares of common stock at a weighted average exercise price of $1.36
per share and 18,638,700 shares reserved for future grant or award under our
1998 Stock Incentive Plan. To the extent any of these options are exercised,
there will be further dilution to new investors. To the extent all of such
outstanding options had been exercised as of July 31, 1999, net tangible book
value per share after this offering would be $2.01 and total dilution per
share to new investors would be $16.99. If the underwriters' over-allotment
option is exercised in full, the number of shares held by new investors will
increase to 7,475,000 shares, or 9.6% of the total number of shares of common
stock outstanding after this offering.
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<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the financial statements and notes thereto and with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and other
financial data included elsewhere in this prospectus. The statement of
operations data for the period from inception (February 17, 1998) through July
31, 1998 and the year ended July 31, 1999 and the balance sheet data as of
July 31, 1998 and 1999 are derived from the financial statements of Sycamore
audited by PricewaterhouseCoopers LLP, independent accountants, which are
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period from
inception
(February 17, Year
1998) through ended
July 31, 1998 July 31, 1999
------------- -------------
(in thousands, except per
share data)
<S> <C> <C>
Statement of Operations Data:
Revenues.......................................... $ -- $ 11,330
Cost of revenues.................................. -- 8,486
------ ---------
Gross profit.................................... -- 2,844
Operating expenses:
Research and development........................ 497 13,955
Sales and marketing............................. 92 4,064
General and administrative...................... 199 1,405
Amortization of stock compensation.............. 5 3,469
------ ---------
Total operating expenses...................... 793 22,893
------ ---------
Loss from operations.............................. (793) (20,049)
Interest income, net.............................. 100 559
------ ---------
Net loss.......................................... $ (693) $ (19,490)
====== =========
Basic and diluted net loss per share.............. $ (.55) $ (6.27)
Weighted average shares used in computing basic
and diluted net loss per share................... 1,251 3,108
Pro forma basic and diluted net loss per share
(unaudited)...................................... $ (.04) $ (.51)
Weighted average shares used in computing pro
forma basic and diluted
net loss per share (unaudited)................... 18,756 38,145
<CAPTION>
As of As of
July 31, 1998 July 31, 1999
------------- -------------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and marketable securities.. $4,279 $ 28,989
Working capital................................... 4,341 40,450
Long term debt, less current portion.............. -- 4,054
Redeemable convertible preferred stock............ 5,621 55,771
Total stockholders' deficit....................... (678) (13,623)
</TABLE>
- --------
See note 2 to the notes to the financial statements for a description of
the computation of basic and diluted net loss per share and the number of
shares used to compute basic and diluted net loss per share.
Pro forma per share calculations reflect the conversion upon the closing of
the offering of all outstanding shares of redeemable convertible preferred
stock into shares of common stock.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
We develop and market networking products that allow service providers to
address customer requirements for high-speed data services and bandwidth. From
our inception on February 17, 1998 through July 31, 1999, our operating
activities consisted primarily of research and development, product design,
development and testing. We also staffed and trained our administrative,
marketing and sales organizations and began sales and marketing activities. In
May 1999, we began shipping our SN 6000 product and recognized revenues of
$11.3 million from shipments of our SN 6000 product in the fourth quarter of
1999. We expect that a significant portion of our future revenue will continue
to come from sales of the SN 6000. While we are developing and plan to
introduce new products and enhancements, we cannot assure you that we will be
successful in these efforts.
Since our inception, we have incurred significant losses, and as of July
31, 1999, we had an accumulated deficit of $20.2 million. We have not achieved
profitability on a quarterly or an annual basis, and anticipate that we will
continue to incur net losses. We have a lengthy sales cycle for our products
and accordingly we expect to incur sales and other expenses before we realize
the related revenue. We expect to incur significant sales and marketing,
research and development and general and administrative expenses and, as a
result, we will need to generate significant revenues to achieve and maintain
profitability. Our policy is to recognize revenue from product sales upon
shipment provided that a purchase order has been received or a contract has
been executed, there are no uncertainties regarding customer acceptance, the
fee is fixed and determinable and collectibility is deemed probable. If
uncertainties regarding customer acceptance exist, revenue is recognized when
uncertainties are resolved. Revenue from technical support and maintenance
contracts is deferred and recognized ratably over the period of the related
agreements. The Company records a warranty liability for parts and labor on
its products. Warranty periods are generally three years from installation
date. Estimated warranty costs are recorded at the time of revenue
recognition.
Our manufacturing expenses consist of amounts paid to third party
manufacturers, manufacturing start-up expenses, manufacturing personnel and
related costs and our customer support group. We outsource our manufacturing
and assembly requirements. Accordingly, a significant portion of our
manufacturing expenses consists of payments to a third-party contract
manufacturer. Manufacturing, engineering and documentation controls are
performed at our facility in Chelmsford, Massachusetts. We believe that our
gross margins will be affected primarily by the following factors:
. demand for our products;
. new product introductions both by us and by our competitors;
. changes in our pricing policies and those of our competitors;
. the mix of product configurations sold; and
. the volume of manufacturing and the effect on manufacturing and
component costs.
Research and development expenses consist primarily of salaries and related
personnel costs, prototype costs and other costs related to the design,
development, testing and enhancement of our products. To date, we have
expensed our research and development costs as they were incurred. Several
components of our research and development effort require significant
expenditures, the timing of which can cause significant quarterly variability
in our expenses. We incur significant expenses in connection with the purchase
of testing equipment for our products. We believe that research and
development is critical to our strategic product development objectives and
intend to enhance our technology to meet the changing requirements of our
customers. As a result, we expect our research and development expenses to
increase in absolute dollars in the future.
Sales and marketing expenses consist primarily of salaries and the related
personnel costs of sales and marketing personnel, commissions, promotional,
travel and other marketing expenses and recruiting expenses.
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We expect that sales and marketing expenses will increase in absolute dollars
in the future as we increase our direct sales efforts, expand our operations
internationally, hire additional sales and marketing personnel, initiate
additional marketing programs and establish sales offices in new locations.
General and administrative expenses consist primarily of salaries and
related expenses for executive, finance, legal, facilities, human resources
and information technology personnel, recruiting expenses and professional
fees. We expect that general and administrative expenses will increase in
absolute dollars as we add personnel and incur additional costs related to the
growth of our business and our operation as a public company.
In connection with the granting of certain stock options and the issuance
of certain restricted shares during the period from inception through July 31,
1998 and the year ended July 31, 1999, we recorded deferred stock compensation
expense of approximately $184,000 and $25.3 million, respectively. Deferred
stock compensation expense consists of charges resulting from the granting of
stock options and restricted shares with exercise or sales prices deemed to be
below the fair value of our common stock on the date of grant. These amounts
are being amortized ratably over the vesting periods of the applicable options
or restricted stock, which are typically five years, with 20% vesting on the
first anniversary of the date of grant and 5% vesting quarterly thereafter.
The Company expects to record an additional deferred compensation expense
of approximately $23.7 million for 2,337,696 stock options granted at exercise
prices, ranging from $4.00 to $10.00, which are deemed to be below fair market
value from August 1, 1999 through September 17, 1999. Such grants have been
made on terms consistent with those described in footnote 6 to the financial
statements. As a result, deferred compensation expense at September 17, 1999
is approximately $47.8 million. The Company expects to continue to grant
options at exercise prices deemed to be below the fair market value through
the closing of this offering.
Results of Operations
Period from inception (February 17, 1998) through July 31, 1998 (fiscal 1998)
and the year ended July 31, 1999.
Revenues
We began shipping the SN 6000 in May 1999 and recognized $11.3 million of
revenue in the three-month period ended July 31, 1999. All revenue was derived
from the shipments of the SN 6000 product. For the year ended July 31, 1999,
one customer accounted for all of our revenue.
Costs of Revenues
Costs of revenues were $8.5 million, or 75% of revenue, for the year ended
July 31, 1999. We began shipping the SN 6000 in May 1999. Costs of revenues as
a percentage of revenue in 1999 were higher than they are anticipated to be in
the future due to the high cost of initial start-up of production, including
the increase in personnel and the low volume of sales.
Research and Development Expenses
Research and development expenses were $497,000 for fiscal 1998 and $14.0
million for fiscal 1999 and represented 63% and 61% of total operating
expenses for fiscal 1998 and 1999, respectively. The increase in expenses was
primarily due to increased costs associated with a significant increase in
personnel and personnel-related expenses, an increase in non-recurring
engineering costs and an increase in prototype expenses for the design and
development of the SN 6000, SN 8000 and SN 16000 products. Research and
development is essential to our future success and we expect that research and
development expenses will increase in absolute dollars in future periods.
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Sales and Marketing Expenses
Sales and marketing expenses were $92,000 for fiscal 1998 and $4.1 million
for fiscal 1999 and represented 12% and 18% of total operating expenses in
fiscal 1998 and 1999, respectively. The increase in expenses reflects the
hiring of additional sales and marketing personnel, sales based commissions
and marketing program costs, including web development, trade shows and
product launch activities. We intend to continue to expand our domestic and
international sales force and marketing efforts and as a result expect sales
and marketing expenses will increase in absolute dollars in future periods.
General and Administrative Expenses
General and administrative expenses were $199,000 for fiscal 1998 and $1.4
million for fiscal 1999 and represented 25% and 6% of total operating expenses
in fiscal 1998 and 1999, respectively. The increase in expenses reflects the
hiring of additional general and administrative personnel and expenses
necessary to support and scale our operations.
Amortization of Stock Compensation
Amortization of stock compensation expense was $5,000 and $1.4 million for
fiscal 1998 and fiscal 1999, respectively. Amortization of stock compensation
expense in fiscal 1998 resulted from the granting of stock options and
restricted shares with the exercise or sales prices below the deemed fair
value of our common stock on the date of grant. Additionally, in 1999, we
incurred $2.1 million of compensation expense associated with the grant of
options to non-employees and members of our advisory boards.
Interest Income, Net
Interest income, net was $100,000 and $559,000 for fiscal 1998 and fiscal
1999, respectively. Interest income consists of interest earned on our cash
balances and marketable securities and interest expense associated with our
equipment note payable. The increase in interest income reflects higher
invested balances in 1999, offset by interest payments on our equipment note
payable in 1999.
Net Operating Losses and Tax Credit Carryforwards
As of July 31, 1999, we had approximately $16.6 million of state and
federal net operating loss carryforwards for tax reporting purposes available
to offset future taxable income. Such net operating loss carryforwards begin
to expire in 2004 and 2019, respectively, to the extent that they are not
utilized. We have not recognized any benefit from the future use of loss
carryforwards for these periods, or for any other periods, since inception.
Management's evaluation of all the available evidence in assessing
realizability of the tax benefits of such loss carryforwards indicates that
the underlying assumptions of future profitable operations contain risks that
do not provide sufficient assurance to recognize the tax benefits currently.
The net operating loss carryforwards could be limited in future years if there
is a significant change in our ownership.
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Quarterly Results of Operations
The following table presents our operating results for the quarters ended
October 31, 1998, January 30, 1999, May 1, 1999 and July 31, 1999. In May
1999, we began shipping the SN 6000. The information for each of these
quarters is unaudited and has been prepared on the same basis as the audited
financial statements appearing elsewhere in this prospectus. In the opinion of
management, all necessary adjustments consisting only of normal recurring
adjustments, have been included to present fairly the unaudited quarterly
results when read in conjunction with our audited financial statements and the
related notes appearing elsewhere in this prospectus. These operating results
are not necessarily indicative of the results of any future period.
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------
July
October 31, January 30, May 1, 31,
1998 1999 1999 1999
----------- ----------- ------- -------
(in thousands)
(unaudited)
<S> <C> <C> <C> <C>
Consolidated Statement of Operations
Data:
Revenues............................ $ -- $ -- $ -- $11,330
Costs of revenues................... 24 215 934 7,313
------- ------- ------- -------
Gross profit (loss)............... (24) (215) (934) 4,017
------- ------- ------- -------
Operating expenses:
Research and development............ 873 2,365 3,334 7,383
Sales and marketing................. 179 243 1,176 2,466
General and administrative.......... 93 280 379 653
Amortization of stock compensation.. 75 135 592 2,667
------- ------- ------- -------
Total operating expenses.......... 1,220 3,023 5,481 13,169
------- ------- ------- -------
Loss from operations................ (1,244) (3,238) (6,415) (9,152)
Interest income, net................ 60 133 295 71
------- ------- ------- -------
Net loss............................ $(1,184) $(3,105) $(6,120) $(9,081)
======= ======= ======= =======
</TABLE>
Our revenues and operating results will vary significantly from quarter to
quarter due to a number of factors, many of which are outside of our control
and any of which may cause our stock price to fluctuate. The primary factors
that may affect us include the following:
. fluctuation in demand for intelligent optical networking products;
. the timing and size of sales of our products;
. the length and variability of the sales cycle for our products;
. the timing of recognizing revenue and deferred revenue;
. new product introductions and enhancements by our competitors and
ourselves;
. changes in our pricing policies or the pricing policies of our
competitors;
. our ability to develop, introduce and ship new products and product
enhancements that meet customer requirements in a timely manner;
. our ability to obtain sufficient supplies of sole or limited source
components;
. increases in the prices of the components we purchase;
. our ability to attain and maintain production volumes and quality levels
for our products;
. the timing and level of prototype expenses;
. costs related to acquisitions of technology or businesses; and
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. 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.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private
sales of our capital stock totaling approximately $58.7 million in net
proceeds through July 31, 1999. We have also financed our operations through
borrowings on long-term debt agreements for the purchase of capital equipment.
At July 31, 1999, cash, cash equivalents and marketable securities totaled
$29.0 million.
Cash used in operating activities was $598,000 for fiscal 1998 and $27.6
million for the year ended July 31, 1999. The increase in cash used for
operating activities reflects increases in net losses, accounts receivables,
inventory purchases and irrevocable standby letters of credit, offset by non
cash charges for amortization of stock compensation and depreciation and
increased accounts payable and accrued expenses, reflecting the growth in
business activity.
Cash used in investing activities was $3.7 million for fiscal 1998 and $4.9
million for the year ended July 31, 1999. The increase in net cash used for
investing activities reflects increased purchases of property and equipment,
primarily for computers and test equipment for our development and
manufacturing activities. The increases in cash used for investing activities
also reflect increased purchases of marketable securities.
Cash provided by financing activities was $5.5 million for fiscal 1998 and
$53.2 million for the year ended July 31, 1999. The increase in cash provided
by financing activities reflects the private sales of redeemable convertible
preferred stock and the issuance of common stock from the exercise of stock
options and the sale and issuance of restricted common stock.
In December 1998, as collateral for an office facility lease, the Company
has issued an irrevocable stand-by letter of credit for $92,000 which is
collateralized by a U.S. Treasury Bill. The letter of credit is irrevocable
and expires in January 2002. In July 1999, as collateral for inventory
purchases made by a third party manufacturer on behalf of the Company, the
Company has issued a guaranteed stand-by letter of credit for $4,000,000 which
is collateralized by a U.S. Government security. The letter of credit is
irrevocable and expires in October 1999.
We believe that the net proceeds from this offering, together with our
current cash, cash equivalents and marketable securities and lines of credit
will be sufficient to meet our anticipated cash needs for working capital and
capital expenditures for at least the next 12 months.
If cash generated from operations is insufficient to satisfy our liquidity
requirements, we may seek to sell additional equity or debt securities. If
additional funds are raised through the issuance of debt securities, these
26
<PAGE>
securities could have rights, preferences and privileges senior to holders of
common stock, and the term of this
debt could impose restrictions on our operations. The sale of additional
equity or convertible debt securities could result in additional dilution to
our stockholders, and we cannot be certain that additional financing will be
available in amounts or on terms acceptable to us, if at all. If we are unable
to obtain this additional financing, we may be required to reduce the scope of
our planned product development and sales and marketing efforts, which could
harm our business, financial condition and operating results.
Year 2000 Compliance
Impact of the Year 2000 Computer Problem. The year 2000 computer problem
refers to the potential for system and processing failures of date-related
data as a result of computer-controlled systems using two digits rather than
four to define the applicable year. For example, computer programs that have
time-sensitive software may recognize a date represented as "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including among other
things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
State of Readiness of our Products. We have designed our products,
including the SN 6000, for use in the year 2000 and beyond and believe our
products are year 2000 complaint. However, our products are generally
integrated into larger networks involving sophisticated hardware and software
products supplied by other vendors. Each of our customers' networks involves
different combinations of third party products. We cannot evaluate whether all
of their products are year 2000 compliant. We may face claims based on year
2000 problems in other companies' products or based on issues arising from the
integration of multiple products within the overall network. Although no such
claims have been made against us, we may in the future be required to defend
our products in legal proceedings which could be expensive regardless of the
merits of such claims.
State of Readiness of our Internal Systems. Our business may be affected by
year 2000 issues related to non-complaint internal systems developed by us or
by third-party vendors. Our material third-party vendors have stated that they
are, or expect to be, year 2000 complaint in a timely manner. We are not
currently aware of any year 2000 problem relating to any of our material
internal systems. We are in the process of testing all such systems for year
2000 compliance and plan to complete such testing before 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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<PAGE>
To date, we have not incurred material expense associated with our efforts
to become year 2000 compliant and do not anticipate that any future costs
associated with our year 2000 remediation efforts will be material.
Market Risk
Sycamore does not use derivative financial instruments. We generally place
our marketable security investments in high credit quality instruments,
primarily U.S. Government obligations and corporate obligations with
contractual maturities of less than one year. We do not expect any material
loss from our marketable security investments and therefore believe that our
potential interest rate exposure is not material.
Recent Accounting Pronouncements
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"). SOP 98-5, which is effective for fiscal years beginning after
December 15, 1998, provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start up activities and
organization costs to be expensed as incurred. Adoption of this standard did
not have a material impact on our financial condition or result of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities," which establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, (collectively referred to
as derivatives) and for hedging activities. We will adopt SFAS No. 133 as
required by SFAS No. 137, "Deferral of the effective date of the FASB
Statement No. 133," in fiscal year 2001. The adoption of SFAS No. 133 is not
expected to have an impact on our financial condition or results of
operations.
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BUSINESS
Overview
We develop and market software-based intelligent optical networking
products that enable network service providers to quickly and cost-effectively
provide bandwidth and create new high speed data services. We believe that the
existing public network is unable to meet the demands of high speed data
applications that are driving network growth. As data traffic on the public
network continues to grow at rates that surpass available network capacity, we
believe that service providers require new solutions to relieve network
congestion and create new data services. Our intelligent optical networking
products are designed to allow service providers to deploy, manage and
optimize the performance of their fiber optic networks. Our products are based
on a common software architecture that we believe will accelerate our release
of new products and enable our customers to upgrade with minimal network
impact and operator training. We have designed our products to protect service
providers' existing investment in fiber optic and transmission equipment and
provide a migration path to the next generation optical public network
infrastructure.
Industry Background
Increase in Data Traffic on the Public Network
Over the past decade, the volume of high speed data traffic across the
public network has grown significantly, reflecting the increasing use of the
network for Internet access, electronic mail communications, electronic
commerce, remote access by telecommuters and other network data transmission
services. According to Ryan, Hankin & Kent, a leading market research and
consulting firm, public network bandwidth will have to increase by over 2000%
between 1998 and 2002 to satisfy expected Internet and other data traffic
requirements.
To meet the growth in the demand for high speed data services, service
providers are investing significantly to upgrade the public network
infrastructure, which was originally built for voice traffic. Service
providers are laying fiber optic cable and installing transmission equipment
which transforms the fiber from available capacity to usable bandwidth by
lighting the fiber. According to Ryan, Hankin & Kent, more than $6.9 billion
was invested in the United States alone in 1998 in building and enhancing the
transmission capability of the public network. This investment was spread
across fiber deployment, SONET equipment and dense wave division multiplexing
equipment, known as DWDM.
Existing Public Network Transmission Infrastructure
Despite these investments, service providers are still unable to quickly
respond to the bandwidth demands of their customers. We believe that this
inability is due in large part to the transmission architecture of the
existing public network. This architecture is based upon telecommunications
standards, referred to as SONET in North America and SDH elsewhere in the
world, which set the hierarchical characteristics for transmitting optical
signals. A SONET/SDH network typically consists of three primary components:
. fiber optic cable that serves as the physical transmission medium and
provides the available capacity;
. DWDM equipment, which multiplies the transmission capacity of a specific
fiber by dividing a single strand into multiple lightpaths, or
wavelengths; and
. SONET/SDH transmission equipment, which converts data traffic from an
electrical signal to an optical signal for transport over the fiber
network.
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In the current public network transmission infrastructure, the ability to
manage data resides in the SONET/SDH equipment which converts the data traffic
from an electrical signal to an optical signal which is transmitted over the
fiber. The optical fiber itself is only a physical transmission medium with no
imbedded intelligence. As a result, moving data through the network involves
the following complex processes that add cost and make scaling difficult:
. Traffic enters the network as an electrical signal and is converted by
the SONET/SDH equipment into an optical signal for transmission across
the network;
. At each network transit point, the optical data traveling across the
network is terminated at a SONET/SDH network terminal;
. The optical data is then converted into an electrical signal and examined
to see which portions of the data are to be extracted from the network at
that transit point; and
. The data is then converted back to an optical signal by the SONET/SDH
equipment for transport to the next network transit point, where the
process is repeated.
The technology of a SONET/SDH architecture typically requires a linear or
ring-based network topology. The following diagram illustrates the process of
transmitting data across a typical SONET/SDH architecture:
[Illustration showing a linear SONET/SDH network. The drawing of the network
contains a fiber optic cable with SONET/SDH transmission equipment and DWDM
equipment attached. The network shows the conversion of traffic from the
optical domain to the electrical domain and back to the optical domain as data
travels across the network.]
Limitations of the Existing Public Network Transmission Infrastructure
The SONET/SDH network architecture was originally designed to transport
voice traffic rather than for today's high speed data services. Unlike voice
traffic, which is generally characterized by slow growth and stable demand,
data traffic is characterized by rapid growth and unpredictable demand. Data
networks must be capable of being deployed cost-effectively and expanded
quickly.
The SONET/SDH network architecture, however, is not sufficiently flexible to
meet these requirements. Generally, the process of expanding the capacity of a
SONET/SDH network is time-consuming and requires significant capital investment
by the service provider. There are currently only two methods to expand a
SONET/SDH network. The first option is to increase the speed at which the
network operates. Because SONET/SDH equipment is designed to operate at a
specific speed and all devices on a ring must operate at the same speed, this
option requires that all equipment on the SONET/SDH ring be replaced with
higher speed devices on a concurrent basis. In addition, because the rings at
the core of the network must carry the aggregate traffic of all of the rings
feeding them, the upgrading of one SONET/SDH ring frequently requires the
upgrading of some or all of the interconnected SONET/SDH rings. Accordingly,
adding capacity to a SONET/SDH ring network is a complex and time consuming
process. The second option to expand a SONET/SDH ring network is to construct
new rings with new fiber or increase the capacity of each individual fiber on a
ring through the utilization of DWDM technology, which can transform each fiber
strand into as many as 100 parallel optical wavelengths. Under either approach,
network complexity increases since each optical wavelength must be terminated
by SONET/SDH equipment and the interconnection of multiple SONET/SDH rings will
absorb some available network capacity.
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Data traffic will typically transit through multiple SONET/SDH rings when
traversing the public network. In addition, in SONET/SDH networks, up to 50%
of network capacity must be reserved to provide alternative routing for
traffic in the event of a network outage. This redundancy, and the numerous
optical-to-electrical-to-optical conversions within each ring and between
rings, create a costly and complex network architecture.
As a result of these limitations, the buildout of a SONET/SDH network
generally requires lengthy time commitments and significant initial equipment
investment by service providers. In today's competitive environment, long lead
times for service provisioning and significant purchase commitments are often
not compatible with the need of service providers to rapidly and cost-
effectively deploy new services and be responsive to their customer demand. To
manage the frequently unpredictable demand of data traffic, service providers
need to move toward a "just-in-time" investment and service delivery model
allowing them to introduce and expand services when and where needed in
response to demand. The migration to a "just-in-time" model will require a
public network architecture that is scalable, flexible and cost-effective and
that is capable of supporting the anticipated growth in high speed data
communications services.
The Sycamore Solution
We develop and market software-based intelligent optical networking
products that enable service providers to quickly and cost-effectively provide
bandwidth and create new high speed data services. Our products are designed
to move data directly onto the fiber without a requirement for intermediary
SONET/SDH equipment. Once on the optical network, data moves through the
network without the need to convert the optical signals to electrical signals
at each network transit point. We believe that adding intelligence to the
optical network enhances the functionality of the network and preserves the
management and restoration benefits of SONET/SDH, while providing the capacity
benefits of DWDM. Our products will provide the tools to enable service
providers to utilize, restore, provision and maintain intelligent optical
networks and optimize the performance of these networks, while providing a
migration path to the next generation optical network.
Key benefits of our solution include the following:
Improves Network Flexibility and Scalability. Our software-based products
are designed to allow service providers to improve the flexibility and
scalability of their networks without the long lead times and large, upfront
capital investment presently required for a network buildout. The software-
based capabilities of our products will permit service providers to change and
upgrade their network infrastructure and services without significant hardware
changes or additions. This improved flexibility and scalability will enable
service providers to more easily expand their network architecture, support
new high speed data applications and introduce value-added services for the
benefit of their customers.
Enables Rapid Service Delivery. The competitive marketplace facing service
providers and the pace of technological change require that the public network
infrastructure be adaptable to accommodate rapid changes in the demand for
service. Our products are designed to shorten the time it takes for service
providers to increase bandwidth and provide services, thereby enabling our
customers to introduce network services on a rapid basis in response to their
customers' demand. We believe that this flexibility will be cost-effective for
service providers because it will enable them to increase capacity based on
current, rather than forecasted, market demand for their services.
Facilitates Introduction of New Data Services and Creation of New Revenue
Opportunities for Service Providers. Because our products are software-based,
we are able to rapidly introduce new features into our products, which can in
turn be offered by service providers to their customers as new services or
service enhancements. We believe that these added features will provide
revenue opportunities for our customers and will enable them to differentiate
their network services from those of their competitors. We have designed a
comprehensive network management solution, which will enable service providers
to monitor the performance of their network, isolate and manage network
faults, and otherwise manage their network on a real-time basis.
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With our network management system, service providers will be able to offer
value-added services such as customer network management (CNM) to their
customers.
Protects Existing Investments. Our products are designed to enable our
customers to increase the functionality and improve the performance of their
networks without sacrificing their infrastructure investments in SONET/SDH
equipment. Our products are designed to facilitate a gradual migration from
existing electro-optical SONET/SDH networks to all-optical networks. Service
providers will be able to introduce our products into an existing optical
network environment, when and where needed, without replacing the current
architecture. For example, over a common fiber infrastructure, a service
provider's existing SONET/SDH network could be used to continue to support low
speed voice and data services, while new higher speed data services could be
supported by our intelligent optical network products. Furthermore, the common
software architecture, which will serve as the basis for our future products,
is intended to ensure the continued interoperability and manageability of our
products as our product line evolves.
Strategy
Our objective is to be the leading provider of intelligent optical
networking products. Key elements of our strategy include the following:
Offer End-to-End Optical Network Solutions To Customers. We intend to
develop and offer a full range of intelligent optical networking products to
our customers. Our current products help service providers improve the
utilization of fiber optic capacity that has already been deployed in the
network. We expect that our future products, which will be based on the same
software architecture, will include an optical switch, which is necessary for
the creation of meshed network environments. A meshed-based network provides
greater flexibility than a ring-based network and provides for more direct
routes between network points, enabling more efficient network restoral or
redundancy schemes. In addition, we intend to differentiate ourselves from our
competition by offering other products that will enable customers to utilize,
restore and provide data services over wavelengths and monitor and improve the
performance level of network traffic.
Collaborate With Customers To Generate Demand For High Speed Data
Services. We work collaboratively with our customers to help them identify and
create new high speed data services. Our professional services team provides
assistance in such areas as network planning, design, implementation and
service launch to facilitate the introduction of these services. By helping
our customers to create new services, we help generate additional revenue
opportunities for our customers and drive additional demand for our products.
Utilize Software-Based Product Architecture. Our products utilize a common
software-based architecture that permits improved flexibility and
interoperability and expanded network management capabilities. The common
architecture is designed to reduce the complexity of introducing new software
revisions across the network. We believe that this architecture will
accelerate the release of new products and enable our customers to upgrade
with minimal network impact and operator training.
Incorporate Commercially Available Optical Hardware Components. We use
commercially available optical hardware components in our products wherever
feasible. We believe that by using these third-party components, we benefit
from the research and development of the vendors of these products, as well as
from the efficiencies of scale that these vendors generate by producing the
components in higher volumes. As a result of our use of these components, we
believe that we can more quickly bring to market a broad-based product line at
a lower cost than if we had utilized proprietary components.
Outsource Manufacturing. We outsource the manufacturing of our products to
reduce our cost structure and to maintain our focus on the development of
value-added software. We believe that most optical networking companies have
manufactured their own products in order to implement specialized
manufacturing techniques historically required for optical componentry.
However, we believe that the quality and consistency of optical
32
<PAGE>
manufacturing techniques have advanced significantly and that, as a result, it
is now possible to engage third party manufacturers to build our products
without sacrificing quality or performance.
Focus On Just-In-Time Implementation. Our product architecture strategy is
to develop products that will enable service providers to expand and upgrade
their networks in response to demand on a "just-in-time" basis. Our software-
based product architecture is designed to help us achieve this goal. Our
software capabilities support a modular "plug and play" hardware architecture
which is designed to allow new and enhanced modules to be easily and
nondisruptively inserted into the network as optical component technology
advances.
Capitalize On Extensive Industry Experience. We have significant
management, engineering and sales experience in the networking and optics
industries and long-standing relationships with key personnel in our target
customer base. We believe that our experience and relationships will be
important in enabling us to develop products to meet our customers' needs and
to penetrate our target market.
Products and Technology
Product Architecture
Our software-based intelligent optical networking products will enable
service providers to use their existing optical network infrastructure to
deliver high speed end-to-end services to meet the bandwidth intensive needs
of data applications. Our products will enable service providers to offer high
speed services over wavelengths directly from the optical network.
Our product architecture is designed to provide the following benefits:
. lowered network infrastructure cost by reducing the number of optical-to-
electrical-to-optical conversions required to transmit data traffic
across the network;
. network simplification by eliminating the need for a separate layer of
SONET/SDH equipment for new services;
. more rapid service delivery by enabling automated end-to-end provisioning
of services;
. non-disruptive network upgrades through advanced software capabilities;
. a practical migration path from a SONET/SDH architecture to an all-
optical network; and
. provide service providers with new revenue opportunities through advanced
features that support value-added service offerings.
We believe that the acceptance and implementation of intelligent optical
networking technology by service providers will be a gradual process driven by
high speed data service demands and network scaling requirements. Our product
strategy will allow service providers to migrate from today's SONET/SDH
network architecture to an intelligent optical network while preserving their
investment in the existing network. As intelligent optical networking
equipment is introduced into an existing SONET/SDH network, the service
provider can increasingly deliver high speed services directly from the
optical network. As the intelligent optical network continues to grow,
switching can be introduced into the optical network to support increased
scaling and efficient traffic routing and to complete the transition to a
meshed-based network architecture. Throughout all of these stages of network
development, we expect to offer the software-based management tools which will
allow the service provider to effectively provision and manage services end-
to-end.
Sycamore's intelligent optical networking products incorporate the
following features:
Intelligent Optical Networking Software. Our entire product line shares a
common software base. This software foundation allows us to minimize product
development time by leveraging our software architecture across multiple
product lines. Our software architecture is designed to provide service
providers with tools to
33
<PAGE>
continue to evolve their network without requiring the replacement of existing
infrastructure. In addition, the architecture is designed to enable service
providers to rapidly absorb new optical technology and functionality into the
network with minimal effort, training and incremental investment. Software-
based features such as topology discovery, system self-inventory and dynamic
power balancing will allow service providers to quickly respond to customer
needs. Additionally, advances in optical components, such as new lasers,
filters, and amplifiers, can be quickly integrated within this software-based
environment.
SONET/SDH Functionality. Our products are designed to provide the optical
interfaces and management and restoration capabilities traditionally offered
on SONET/SDH equipment. By supporting these capabilities within the optical
domain, rather than the electrical domain, service providers can directly
offer services without the need for separate SONET/SDH products.
DWDM Technology. DWDM technology creates capacity by multiplying the number
of wavelengths that a single fiber can support. We integrate commercially
available DWDM optical technology into our products, providing a comprehensive
solution for our customers' multiplexing needs.
Network Management. Our network management products will provide end-to-end
management and control of the intelligent optical network. Network management
functions include fault management, configuration management, accounting
management, performance management and security management. Comprised of
SilvxManager, a network management platform, and SilvxSource, a system-
resident management application, our network management products constitute a
distributed solution designed to provide end-to-end management of the
intelligent optical network. Our network management products are designed to
manage Sycamore's intelligent optical networking products, provide for the
management of third party products and integrate with other operating support
systems when introduced into an existing network environment.
Sycamore's Intelligent Optical Networking Products
The following chart describes our current and planned products:
<TABLE>
<CAPTION>
Product Application Service* Status
- -------------------------------------------------------------------------------------
<C> <S> <C> <C>
SN 6000 Intelligent OC-48/STM-16 Wave Service (Long Commercially
Optical Distance) available
Transport
Product
- -------------------------------------------------------------------------------------
SN 8000 Intelligent OC-48/STM-16 Wave Service (Medium Commercially
Optical Distance) available
------------------------------------------------------
Add/Drop Product OC-48/STM-16 Wave Service (Long In test stage
Distance)
------------------------------------------------------
OC-12/STM-4 Wave Service In development
------------------------------------------------------
OC-3/STM-1 Wave Service In development
------------------------------------------------------
OC-192/STM-64 Wave Service In development
- -------------------------------------------------------------------------------------
SilvxSource SN 6000/8000 Provides local management of wave Commercially
Management services available
Software
- -------------------------------------------------------------------------------------
SilvxManager Network Provides end-to-end management of Field test at
Management wave services customer's site
System
(Software)
- -------------------------------------------------------------------------------------
SN 16000 Intelligent Will provide wave-based switching In development
Optical Switch and routing in meshed network
environment
</TABLE>
- --------
* References to OC services are to data transport services at a speed
indicated by the number following the OC designation. For example, OC-48
service designates a transmission speed of 2.5 gigabytes per second. Higher
numbers denote faster transmission speeds.
SN 6000. The SN 6000 is an intelligent optical transport product designed
specifically to work within an existing SONET/SDH network. The SN 6000 enables
high speed services over fiber optic wavelengths and can be overlaid on top of
the existing network. The SN 6000 will allow a service provider to begin the
migration from a SONET/SDH network to an intelligent optical network.
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<PAGE>
SN 8000. The SN 8000 is an intelligent optical add/drop product that will
be used to provide high speed services over fiber optic wavelengths for
access, interoffice, regional, and backbone networks. The SN 8000 will provide
a complete stand-alone optical networking solution and can be configured in
point-to-point linear or ring applications. The SN 8000 can be overlaid on top
of existing SONET/SDH networks, allowing service providers to implement
optical networking technology when and where needed, without replacing an
installed infrastructure.
SilvxSource and SilvxManager. The SILVX optical network management system
provides end-to-end management of data communications services across a
service provider's optical network. SILVX simplifies network configuration,
network provisioning and network management by implementing many of today's
manual and labor-intensive network management processes within software.
Additionally, SILVX allows service providers to offer network management-based
services to their customers. SilvxSource software runs on the intelligent
optical network elements (SN 6000, SN 8000 and in the future, SN 16000) and
the SilvxManager software runs on a centralized management station.
SN 16000. We are developing the SN 16000 optical switch for end-to-end
wavelength switching and routing, which is necessary for the creation of a
meshed topology network. The SN 16000 will support incremental network growth
through a modular architecture and is being designed to coexist with the SN
6000 and the SN 8000, as well as other third-party optical networking
products.
Customers
Our target customer base includes new and established local voice and data
service providers, long distance carriers, Internet service providers, cable
operators, PTTs (foreign telephone companies) and carriers who provide service
to other customers. At July 31, 1999, we had shipped product to one customer,
Williams Communications, Inc. Williams Communications is a leading US-based
carrier, providing communications services to other carriers. Williams is
currently using our SN 6000 intelligent optical networking product in its
internal data network to provision OC-48 waves between its ATM switches.
Sales and Marketing
We sell our products through a direct sales force. In addition, we intend
to establish relationships with selected OEMs and other marketing partners,
both domestically and internationally, in order to serve particular markets
and provide our customers with opportunities to purchase our products in
combination with related services and products. As of July 31, 1999, our sales
and marketing organization consisted of 30 employees, of which:
. 16 are located in our headquarters in Chelmsford, Massachusetts, and
. 14 are located in a total of 7 sales and support offices around the
United States.
Our marketing objectives include building market awareness and acceptance
of Sycamore and our products as well as generating qualified customer leads.
We send out direct mail and attend trade shows, and provide information about
our company and our products on our Web site. We also conduct public relations
activities, including interviews and demonstrations for industry analysts. In
addition, our senior executives have significant industry contacts as a result
of their prior experience.
Our professional services team works collaboratively with our customers and
prospective customers to help them identify and create new high speed data
services that they can offer to their customers. We believe that this
assistance is an integral aspect of our sales and marketing efforts which will
help drive additional demand for our products.
35
<PAGE>
Research and Development
We have assembled a team of highly skilled engineers with significant
telecommunications industry experience. Our engineers have expertise in
optics, hardware and software. As of July 31, 1999, we had 87 employees
responsible for product development, quality assurance and documentation. Our
development group's priority includes the release of new products which will
facilitate the deployment of optical networks. We are focused on enhancing the
scalability, performance and reliability of our intelligent optical network
products.
We have made, and will continue to make, a substantial investment in
research and development. Research and development expenses were $497,000 for
the period from inception through July 31, 1998 and $14.0 million for the year
ended July 31, 1999. All of our software development costs have been expensed
as incurred.
While we have developed, and expect to continue to develop, most new
products and enhancements to existing products internally, we have licensed
certain commercially available software technology from third parties.
Competition
The market for intelligent optical networking products is intensely
competitive, subject to rapid technological change and significantly affected
by new product introductions and other market activities of industry
participants. We expect competition to persist and intensify in the future.
Our primary sources of competition include vendors of 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.
Proprietary Rights and Licensing
Our success and ability to compete are dependent on our ability to develop
and maintain the proprietary aspects of our technology and operate without
infringing on the proprietary rights of others. We rely on a combination of
patent, trademark, trade secret and copyright law and contractual restrictions
to protect the proprietary aspects of our technology. These legal protections
afford only limited protection for our technology. We presently have three
patent applications pending in the United States and we cannot be certain that
patents
36
<PAGE>
will be granted based on these or any other applications. We seek to protect
our source code for our software, documentation and other written materials
under trade secret and copyright laws. We license our software pursuant to
signed license agreements, which impose certain restrictions on the licensee's
ability to utilize the software. Finally, we seek to limit disclosure of our
intellectual property by requiring employees and consultants with access to
our proprietary information to execute confidentiality agreements with us and
by restricting access to our source code. Due to rapid technological change,
we believe that factors such as the technological and creative skills of our
personnel, new product developments and enhancements to existing products are
more important than the various legal protections of our technology to
establishing and maintaining a technology leadership position.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult and while we are unable to determine the extent to which piracy of
our software exists, software piracy can be expected to be a persistent
problem. Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets, to determine the validity and
scope of the proprietary rights of others or to defend against claims of
infringement or invalidity. However, the laws of many countries do not protect
our proprietary rights to as great an extent as do the laws of the United
States. Any such resulting litigation could result in substantial costs and
diversion of resources and could have a material adverse effect on our
business, operating results and financial condition. There can be no assurance
that our means of protecting our proprietary rights will be adequate or that
our competitors will not independently develop similar technology. Any failure
by us to meaningfully protect our property could have a material adverse
effect on our business, operating results and financial condition.
There can be no assurance that third parties will not claim infringement
with respect to our current or future products. Any such claims, with or
without merit, could be time-consuming to defend, result in costly litigation,
divert management's attention and resources, cause product shipment delays or
require us to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
us or at all. A successful claim of product infringement against us and our
failure or inability to license the infringed technology or develop or license
technology with comparable functionality could have a material adverse effect
on our business, financial condition and operating results.
We integrate third-party software into our products. This third-party
software may not continue to be available on commercially reasonable terms. If
we cannot maintain licenses to this third-party software, distribution of our
products could be delayed until equivalent software could be developed or
licensed and integrated into our products, which could materially adversely
affect our business, operating results and financial condition.
Manufacturing
The manufacturing of our products is entirely outsourced. Celestica, Inc.
provides comprehensive manufacturing services, including assembly, test,
control and shipment to our customers, and procures materials on our behalf.
We design, specify and monitor all of the tests that are required to meet our
internal and external quality standards, which are conducted by Celestica with
test equipment owned by us. We believe that the outsourcing of our
manufacturing will enable us to conserve the working capital that would be
required to purchase inventory, will allow us to better adjust manufacturing
volumes to meet changes in demand, and will better enable us to more quickly
deliver products. At present, we purchase products from Celestica and our
other manufacturers on a purchase order basis. We are in the process of
negotiating a long-term contract with Celestica. We cannot assure you that we
will be able to enter into a long-term contract on terms acceptable to us, if
at all.
Employees
As of July 31, 1999, we had a total of 148 employees of which:
. 87 were in research and development,
37
<PAGE>
. 30 were in sales and marketing,
. 7 were in customer service and support,
. 9 were in manufacturing, and
. 15 were in finance and administration.
Our future success will depend in part on our ability to attract, retain
and motivate highly qualified technical and management personnel, for whom
competition is intense. Our employees are not represented by any collective
bargaining unit. We believe our relations with our employees are good.
Properties
Our headquarters are currently located in a leased facility in Chelmsford,
Massachusetts, consisting of approximately 35,000 square feet under a lease
that expires in 2002.
Legal Proceedings
We are not currently a party to any material litigation.
One of our non-officer sales employees has been sued by a former employer
which has alleged, among other things, that the employee improperly disclosed
confidential information of the former employer regarding its business
dealings with our customer. We have chosen to assume the cost of defending
this lawsuit.
38
<PAGE>
MANAGEMENT
Executive Officers, Directors and Key Employees
The executive officers, directors and key employees of Sycamore, and their
respective ages and positions as of July 31, 1999, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Executive Officers and
Directors:
Gururaj Deshpande....... 48 Chairman of the Board of Directors
Daniel E. Smith......... 50 President, Chief Executive Officer and
Director
Frances M. Jewels....... 34 Chief Financial Officer, Vice President,
Finance and Administration, Treasurer and
Secretary
Chikong Shue............ 48 Vice President, Engineering
Ryker Young............. 35 Vice President, Sales
John E. Dowling......... 46 Vice President, Operations
Kurt Trampedach......... 55 Vice President, International Sales
Jeffry A. Kiel.......... 35 Vice President, Product Marketing
Anita Brearton.......... 40 Vice President, Corporate Marketing
Timothy Barrows (1)(2).. 42 Director
Paul J. Ferri (1)(2).... 60 Director
John W. Gerdelman....... 46 Director
Other Key Employees:
Richard A. Barry........ 33 Chief Technical Officer
Eric A. Swanson......... 39 Chief Scientist
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
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.
39
<PAGE>
Chikong Shue has served as our Vice President of Engineering since August
1998. From June 1997 to July 1998, Mr. Shue was Vice President of Software and
Systems Engineering of the Core Switching Division of Ascend Communications,
Inc. Mr. Shue was a co-founder of Cascade Communications Corp. and served as
director of software engineering at Cascade from May 1991 to August 1994 and
as a corporate fellow and Vice President of Cascade's Remote Access
Engineering division from September 1994 until March 1997.
Ryker Young has served as our Vice President of Sales since August 1998.
From July 1997 to August 1998, Mr. Young was Central Region Director of Sales
for Ascend Communications, Inc. From January 1996 to June 1997, Mr. Young was
the South Central Regional District Manager for Cascade Communications Corp.
From October 1994 to December 1995, Mr. Young was Major Account Manager for
Cisco Systems, Inc.
John E. Dowling has served as our Vice President of Operations since August
1998. From July 1997 to August 1998, Mr. Dowling served as Vice President of
Operations of Aptis Communications, a manufacturer of carrier-class access
switches for network service providers. Mr. Dowling served as Vice President
of Operations of Cascade Communications Corp. from May 1994 to June 1997.
Kurt Trampedach has served as our Vice President of International Sales
since July 1999. From June 1999 to July 1999, Mr. Trampedach was Vice
President, Carrier Market Development for Lucent Technologies, Inc. From June
1997 to June 1999 he was Vice President, Carrier Market Development for Ascend
Communications, Inc. From September 1996 to June 1997, Mr. Trampedach was Vice
President, International Sales for Cascade Communications Corp. Mr. Trampedach
was Vice President, European Operations for Alcatel USA, Inc. from April 1994
to September 1996.
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. Mr.
Barrows also serves on the board of directors of SilverStream Software, Inc.
Paul J. Ferri has served as a director since February 1998. Mr. Ferri has
been a general partner of Matrix Partners, a venture capital firm, since
February 1982. Mr. Ferri also serves on the board of directors of VideoServer,
Inc. and Applix, Inc.
John W. Gerdelman has served as a director since September 1999. Mr.
Gerdelman has been President and Chief Executive Officer of USA Net Inc. since
April 1999. Mr. Gerdelman was employed by MCI Telecommunications Corporation
as President of the Network and Information Technology Division from September
1994 to April 1999 and Senior Vice President of Sales and Service Operations
from June 1992 to September 1994.
40
<PAGE>
Richard A. Barry has served as our Chief Technical Officer since July 1999
and as our Director of Architecture from our inception in February 1998 to
July 1999. Prior to co-founding Sycamore, from September 1994 to February
1998, Mr. Barry was Chief Network Architect of the Advanced Networks Group at
MIT's Lincoln Laboratory. Mr. Barry was an assistant professor in the
Electrical Engineering and Computer Science Department at George Washington
University from September 1993 to August 1994.
Eric A. Swanson, a co-founder of Sycamore, has served as Chief Scientist
since our inception in February 1998. From 1982 to February 1998, Mr. Swanson
was Associate Group Leader of the Advanced Networks Group at MIT's Lincoln
Laboratory.
Each executive officer serves at the discretion of the board of directors
and holds office until his or her successor is elected and qualified or until
his or her earlier resignation or removal. There are no family relationships
among any of the directors or executive officers of Sycamore. Each of the
directors serves on the board of directors pursuant to the terms of an
agreement that will terminate upon the closing of this offering.
Election of Directors
Following this offering, the board of directors will be divided into three
classes, each of whose members will serve for a staggered three-year term.
Messrs. Barrows and Gerdelman will serve in the class whose term expires at
the annual meeting of stockholders in 2000; Messrs. Ferri and Deshpande will
serve in the class whose term expires at the annual meeting of stockholders in
2001; and Mr. Smith will serve in the class whose term expires at the annual
meeting of stockholders in 2002. Upon the expiration of the term of a class of
directors, directors in such class will be elected for three-year terms at the
annual meeting of stockholders in the year in which such term expires.
Compensation of Directors
We reimburse directors for reasonable out-of-pocket expenses incurred in
attending meetings of the board of directors.
Compensation Committee Interlocks and Insider Participation
Prior to the appointment of the Compensation Committee, Sycamore's full
board of directors (which includes Messrs. Deshpande and Smith) was
responsible for the functions of a Compensation Committee. No interlocking
relationship exists between any member of our board of directors or our
Compensation Committee and any member of the board of directors or
compensation committee of any other company, and no such interlocking
relationship has existed in the past.
Board Committees
The board of directors has established a Compensation Committee and an
Audit Committee. The Compensation Committee, which consists of Messrs. Ferri
and Barrows, reviews executive salaries, administers bonuses, incentive
compensation and stock plans, and approves the salaries and other benefits of
our executive officers. In addition, the Compensation Committee consults with
our management regarding our benefit plans and compensation policies and
practices.
The Audit Committee, which consists of Messrs. Ferri and Barrows, reviews
the professional services provided by our independent accountants, the
independence of such accountants from our management, our annual financial
statements and our system of internal accounting controls. The Audit Committee
also reviews such other matters with respect to our accounting, auditing and
financial reporting practices and procedures as it may find appropriate or may
be brought to its attention.
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<PAGE>
Executive Compensation
The table below sets forth, for the fiscal year ended July 31, 1999, the
cash compensation earned by:
. our Chairman of the Board,
. our Chief Executive Officer and
. the other most highly compensated executive officer who received annual
compensation in excess of $100,000, collectively referred to below as the
Named Executive Officers.
In accordance with the rules of the Securities and Exchange Commission, the
compensation set forth in the table below does not include medical, group life
or other benefits which are available to all of our salaried employees, and
perquisites and other benefits, securities or property which do not exceed the
lesser of $50,000 or 10% of the person's salary and bonus shown in the table.
In the table below, columns required by the regulations of the Securities and
Exchange Commission have been omitted where no information was required to be
disclosed under those columns.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
--------------------------------- ----------------
Awards
----------------
Other Annual Securities All Other
Salary Bonus Compensation Underlying Compensation
($) ($) ($) Options/SARS (#) ($)
------- ------ ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
Gururaj Deshpande
Chairman and Founder... 100,000 -- -- -- --
Daniel E. Smith
President and Chief
Executive Officer ..... 73,077(1) -- -- -- --
Ryker Young
Vice President, Sales.. 117,788 49,998(2) -- 60,000 9,326(3)
</TABLE>
- --------
(1) Represents the total amount of compensation Mr. Smith received in fiscal
1999 for the portion of the year during which he was one of our executive
officers. Mr. Smith joined us in October 1998.
(2) Represents advance commission income.
(3) Represents reimbursement for relocation expenses.
Stock Options
The following table contains information concerning the grant of options to
purchase shares of our common stock to each of the Named Executive Officers
during the fiscal year ended July 31, 1999. Percentages are based on an
aggregate of 7,760,100 shares granted in fiscal 1999. All options were granted
at fair market value as determined by the board of directors on the date of
grant.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed
Annual Rates of
Number of Percent of Stock
Securities Total Options Appreciation for
Underlying Granted To Exercise Option Term(1)
Options Employees in Price Expiration -----------------
Granted Fiscal Year ($/Share) Date 5% 10%
---------- ------------- --------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gururaj Deshpande....... -- -- -- -- -- --
Daniel E. Smith......... -- -- -- -- -- --
Ryker Young............. 60,000(2) .78% $.33 June 16, 2009 12,578 31,875
</TABLE>
42
<PAGE>
(1) Amounts reported in these columns represent amounts that may be realized
upon exercise of options immediately prior to the expiration of their term
assuming the specified compounded rates of appreciation (5% and 10%) on
Sycamore's common stock over the term of the options. The potential
realizable values set forth above do not take into account applicable tax
and expense payments that may be associated with such option exercises.
Actual realizable value, if any, will be dependent on the future price of
the common stock on the actual date of exercise, which may be earlier than
the stated expiration date. The 5% and 10% assumed annualized rates of
stock price appreciation over the exercise period of the options used in
the table above are mandated by the rules of the Securities and Exchange
Commission and do not represent Sycamore's estimate or projection of the
future price of the common stock on any date. There is no representation
either express or implied that the stock price appreciation rates for the
common stock assumed for purposes of this table will actually be achieved.
(2) These options are exercisable immediately on the grant date, but unvested
shares are subject to a repurchase right in favor of Sycamore that
generally entitles us to repurchase these shares at their original
exercise price upon termination of Mr. Young's services with Sycamore.
Approximately one year from the hire date of Mr. Young, the repurchase
right lapses as to a portion of the shares subject to the option and
thereafter such right lapses as to an additional 5% of the shares subject
to the option for each full three months of employment completed by Mr.
Young.
Fiscal Year-End Option Values
The following table sets forth information for each of the Named Executive
Officers with respect to the value of options outstanding as of July 31, 1999.
Aggregated Year-End Option Table
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-The-Money Options at
Acquired Value Options at July 31, 1999 July 31, 1999 ($)
on Exercise Realized ------------------------- -------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gururaj Deshpande....... -- -- -- -- -- --
Daniel E. Smith......... -- -- -- -- -- --
Ryker Young............. 60,000(1) 40,000(2) -- -- -- --
</TABLE>
- --------
(1) These shares are subject to a repurchase right in favor of Sycamore as
described above.
(2) Calculated on the basis of the fair market value of our common stock as of
the date of exercise, of $1.00 per share, as determined by the board of
directors on such date, less the aggregate exercise price.
Benefit Plans
1999 Stock Incentive Plan. Our 1999 Stock Incentive Plan was adopted by our
board of directors in August 1999 and approved by our stockholders in
September 1999. Any shares not yet issued under our predecessor 1998 Stock
Incentive Plan on the date of this offering, 18,638,700 shares as of July 31,
1999, will be available under the 1999 Plan. In addition, there will be an
annual increase beginning on August 1, 2000 of the lesser of:
. 3,000,000 shares;
. 5% of the outstanding shares on the date of the increase; or
. a lesser amount determined by the board.
The 1999 plan provides for the grant of incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code, non-qualified stock
options, restricted stock awards and other stock-based awards.
Our officers, employees, directors, consultants and advisors and those of
our subsidiaries are eligible to receive awards under the 1999 plan. Under
present law, however, incentive stock options may only be granted to
employees. No participant may receive any award for more than 500,000 shares
in any calendar year.
43
<PAGE>
Optionees receive the right to purchase a specified number of shares of
common stock at a specified option price and subject to such other terms and
conditions as are specified in connection with the option grant. We may grant
options at an exercise price less than, equal to or greater than the fair
market value of our common stock on the date of grant. Under present law,
incentive stock options and options intended to qualify as performance-based
compensation under Section 162(m) of the Internal Revenue Code may not be
granted at an exercise price less than the fair market value of the common
stock on the date of grant or less than 110% of the fair market value in the
case of incentive stock options granted to optionees holding more than 10% of
the voting power of the company. The 1999 plan permits our board of directors
to determine how optionees may pay the exercise price of their options,
including by cash, check or in connection with a "cashless exercise" through a
broker, by surrender to us of shares of common stock, by delivery to us of a
promissory note, or by any combination of the permitted forms of payment.
Our board of directors administers the 1999 plan. Our board of directors
has the authority to adopt, amend and repeal the administrative rules,
guidelines and practices relating to the plan and to interpret its provisions.
It may delegate authority under the 1999 plan to one or more committees of the
board of directors and, subject to certain limitations, to one or more of our
executive officers. Our board of directors has authorized the compensation
committee or another committee appointed by the board to administer the 1999
plan, including the granting of options to our executive officers. Subject to
any applicable limitations contained in the 1999 plan, our board of directors,
our compensation committee or any other committee or executive officer to whom
our board of directors delegates authority, as the case may be, selects the
recipients of awards and determines:
. the number of shares of common stock covered by options and the dates
upon which such options become exercisable;
. the exercise price of options;
. the duration of options; and
. the number of shares of common stock subject to any restricted stock or
other stock-based awards and the terms and conditions of such awards,
including the conditions for repurchase, issue price and repurchase
price.
In the event of a merger, consolidation, asset sale, liquidation or similar
transaction resulting in a change of control of Sycamore, each outstanding
option will immediately become fully exercisable with respect to the total
number of shares subject to the option. However, an option would not so
accelerate if the option is assumed or otherwise continued in full force by
the successor entity, if the option is replaced with a cash incentive program
of the successor corporation which presents the spread at the time of the
change of control on the shares which were not otherwise then exercisable, or
if the acceleration of the option is subject to other limitations imposed on
the date of grant. Notwithstanding the foregoing, the number of vested shares
will, immediately prior to a change of control, be increased by the number of
shares that would have become vested on the date 12 months following a change
of control (six months for persons employed less than one year prior to the
change of control), and if following a change of control the successor
corporation terminates the employee without cause, all of his or her options
will become vested upon the termination of his or her employment.
No award may be granted under the 1999 plan after the tenth anniversary of
the effective date, but the vesting and effectiveness of Awards previously
granted may extend beyond that date. Our board of directors may at any time
amend, suspend or terminate the 1999 plan, except that no award granted after
an amendment of the 1999 plan and designated as subject to Section 162(m) of
the Internal Revenue Code by our board of directors shall become exercisable,
realizable or vested, to the extent such amendment was required to grant such
award, unless and until such amendment is approved by our stockholders.
1999 Employee Stock Purchase Plan. Our 1999 Employee Stock Purchase Plan
was adopted by our board of directors in August, 1999 and received stockholder
approval in September, 1999. The purchase plan authorizes the issuance of up
to a total of 750,000 shares of our common stock to participating employees.
On August 1 of each year, commencing with August 1, 2000, the aggregate number
of shares available for purchase during the
44
<PAGE>
life of the plan is automatically increased by the number of shares necessary
to cause the number of shares then available for purchase to be restored to
750,000.
All of our employees, including directors who are employees, and all
employees of any participating subsidiaries:
. whose customary employment is more than 20 hours per week for more than
five months in a calendar year,
. whose customary employment is at least five months in any calendar year,
and
. who hold less than five percent of the total combined voting power of the
Company
are eligible to participate in the purchase plan. As of July 31, 1999,
approximately 148 of our employees would have been eligible to participate in
the purchase plan.
On the first day of an offering period, we will grant to each eligible
employee who has elected to participate in the purchase plan an option to
purchase shares of common stock as follows: the employee may authorize an
amount (up to 10%, or such lesser amount as shall be determined by the Board,
of such employee's base pay) to be deducted from such employee's base pay
during the offering period. On the last day of the offering period, the
employee is deemed to have exercised the option, at the option exercise price,
to the extent of accumulated payroll deductions. Under the terms of the
purchase plan, the option exercise price is an amount equal to 85% of the
closing price per share of the common stock on either the first day or the
last day of the offering period, whichever is lower. The first offering period
under the purchase plan will commence on the effective date of the
registration by Sycamore of its shares under the Exchange Act, with the option
price on the first day of such offering period equivalent to the initial
public offering price. In no event may an employee purchase in any one
offering period a number of shares which exceeds the number of shares
determined by dividing the product of (1) $12,500 by the closing market price
of a share of common stock on the first business day of the offering period or
such other number as may be determined by the Board prior to the commencement
date of the offering period. Each offering period is expected to be of 6
months (other than the first offering period, which will end April 30, 2000);
provided that the board of directors may, in its discretion, choose a
different offering period of 27 months or less.
An employee who is not a participant on the last day of the offering
period, as a result of voluntary withdrawal or termination of employment or
for any 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 in August 1999 and received
stockholder approval in September 1999. The option plan authorizes the
issuance of up to a total of 500,000 shares of our common stock to
participating directors who are not also an employee or officer. On August 1
of each year, commencing with August 1, 2000, the aggregate number of shares
available for the grant of options under the plan is automatically increased
by the number of shares necessary to cause the total number of shares then
available for grant to 500,000.
Each director who is not also an employee or officer shall be automatically
granted an option to purchase 30,000 shares of common stock on the latest to
occur of:
. the date the person is first elected to the board or
. August 17, 1999.
45
<PAGE>
In addition, each of these directors will be automatically granted an
option to purchase 10,000 shares immediately following each annual meeting of
stockholders. The option exercise price per share for all options granted
under the option plan will be equal to the fair market value of our common
stock on the date of grant. Under the plan, options are fully exercisable on
the date of grant. Options granted on the later of August 17, 1999 or the date
the person is first elected to the board, are subject to repurchase by the
Company prior to completion of a three-year vesting period. Options granted
immediately following each annual meeting of stockholders are subject to
repurchase by the Company prior to completion of a one-year vesting period.
The term of each option is 10 years from the date of grant. Our board of
directors has discretion to establish the terms of options granted under the
Plan. No options to purchase shares have been granted to date under the option
plan.
401(k) Plan. On December 9, 1998, we adopted an employee savings and
retirement plan qualified under Section 401 of the Internal Revenue Code and
covering all of our employees. Pursuant to the 401(k) plan, employees may
elect to reduce their current compensation by up to the statutorily prescribed
annual limit and have the amount of such reduction contributed to the 401(k)
plan. We may make matching or additional contributions to the 401(k) plan in
amounts to be determined annually by our board of directors. We have made no
contributions to the 401(k) plan to date.
46
<PAGE>
CERTAIN TRANSACTIONS
Preferred Stock Issuances
Since inception in February 1998, we have issued and sold shares of
redeemable convertible preferred stock to the following persons and entities
who are our executive officers, directors or principal stockholders. Upon the
closing of this offering, each share of preferred stock will convert into
three shares of common stock. For more detail on shares held by these
purchasers, see "Principal Stockholders."
<TABLE>
<CAPTION>
Series A Series B Series C
Preferred Preferred Preferred
Investor Stock Stock Stock
- -------- --------- --------- ---------
<S> <C> <C> <C>
Gururaj Deshpande................................. 2,750,000 1,059,976 385,647
Daniel E. Smith................................... 2,475,000 953,979 347,082
Chikong Shue...................................... 300,000 115,634 42,071
John E. Dowling................................... -- 71,429 --
Matrix V Management Co., L.L.C.(1)................ 2,750,000 1,059,976 385,647
</TABLE>
- --------
(1) Composed of Matrix Partners V, L.P. and Matrix V Entrepreneurs Fund, L.P.
Matrix V Management Co., L.L.C. is the general partner of each of Matrix
Partners V, L.P. and Matrix V Entrepreneurs Fund, L.P. Timothy Barrows and
Paul J. Ferri, directors of Sycamore, are general partners of Matrix V
Management Co., L.L.C.
Series A Financing. On February 19, 1998, April 2, 1998, July 31, 1998 and
October 29, 1998, we issued an aggregate of 8,961,812 shares of Series A
preferred stock to 8 investors, including Gururaj Deshpande, Daniel E. Smith,
Chikong Shue and Matrix Partners V, L.P. The per share purchase price for our
Series A preferred stock was $.91.
Series B Financing. On December 3, 1998 and February 11, 1999, we issued an
aggregate of 3,607,062 shares of Series B preferred stock to 11 investors,
including Gururaj Deshpande, Daniel E. Smith, Chikong Shue, John E. Dowling
and Matrix Partners V, L.P. The per share purchase price for our Series B
preferred stock was $3.50.
Series C Financing. On March 2, 1999, we issued an aggregate of 2,500,000
shares of Series C preferred stock to 15 investors, including Gururaj
Deshpande, Daniel E. Smith, Chikong Shue, Matrix Partners V, L.P. and Matrix V
Entrepreneurs Fund, L.P. The per share purchase price for our Series C
preferred stock was $8.00.
Common Stock Issuances
During fiscal 1999, Frances M. Jewels, our Chief Financial Officer,
purchased an aggregate of 435,000 shares of common stock for $.33 per share
and Kurt Trampedach, our Vice President of International Sales, purchased an
aggregate of 375,000 shares of common stock for $1.00 per share, each pursuant
to stock restriction agreements that give us the right to repurchase all or a
portion of the shares at their purchase price in the event that the employee
ceases to be employed by us. Other executive officers have purchased shares of
common stock pursuant to similar stock restriction agreements for aggregate
purchase prices which did not exceed $60,000 for any one executive officer.
The repurchase right generally lapses as to 20% of the shares subject to such
option approximately one year from the hire date of the executive officer and
thereafter lapses as to an additional 5% of the shares for each full three
months of employment completed by such person.
All future transactions, including loans between us and our officers,
directors, principal stockholders and their affiliates will be approved by a
majority of the board of directors, including a majority of the independent
and disinterested directors on the board of directors, and will be on terms no
less favorable to us than could be obtained from unaffiliated third parties.
47
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of July 31, 1999, by:
. each person who owns beneficially more than 5% of the outstanding shares
of our common stock;
. each of our directors and the Named Executive Officers; and
. all of our directors and executive officers as a group.
The number of shares of common stock deemed outstanding prior to this
offering includes 70,556,337 shares of common stock outstanding as of July 31,
1999, after giving effect to the conversion of all shares of redeemable
convertible preferred stock into common stock. The number of shares of common
stock deemed outstanding after this offering includes the 6,500,000 shares
that are being offered for sale by us in this offering. Beneficial ownership
is determined in accordance with the rules of the Securities and Exchange
Commission, and includes voting and investment power with respect to shares.
Common stock subject to options exercisable within 60 days of July 31, 1999
are deemed outstanding for purposes of computing the percentage ownership of
the person holding such option but are not deemed outstanding for purposes of
computing the percentage ownership of any other person. Unless otherwise
indicated below, to our knowledge, all persons named in the table have sole
voting and investment power with respect to their shares of common stock,
except to the extent authority is shared by spouses under applicable law.
Unless otherwise indicated, the address of each person owning more than 5% of
the outstanding shares of common stock is c/o Sycamore Networks, Inc., 10
Elizabeth Drive, Chelmsford, Massachusetts 01824.
<TABLE>
<CAPTION>
Percentage of
Common Stock
Number of Outstanding(%)
Shares -----------------
Beneficially Before After
Name and Address of Beneficial Owner Owned Offering Offering
------------------------------------ ------------ -------- --------
<S> <C> <C> <C>
Gururaj Deshpande(1)........................... 16,336,869 23.2 21.2
Daniel E. Smith................................ 14,703,183 20.8 19.1
Matrix V Management Co., L.L.C.(2)
1000 Winter Street, Suite 4500
Waltham, MA 02154............................. 12,586,869 17.8 16.3
Ryker Young.................................... 1,021,812 1.4 1.3
Timothy Barrows(2)
c/o Matrix V Management Co., L.L.C.
1000 Winter Street, Suite 4500
Waltham, MA 02154............................. 12,586,869 17.8 16.3
Paul J. Ferri(2)
c/o Matrix V Management Co., L.L.C.
1000 Winter Street, Suite 4500
Waltham, MA 02154............................. 12,586,869 17.8 16.3
John W. Gerdelman(3)........................... *
Jaishree Deshpande, as Trustee of the Gururaj
Deshpande Grantor Retained Annuity Trust...... 6,000,000 8.5 7.8
All executive officers and directors as a group
(12 persons).................................. 50,046,135 70.9 64.9
</TABLE>
- --------
* Less than 1% of the outstanding common stock.
(1) Includes 1,312,500 shares held by the Deshpande Irrevocable Trust and
6,000,000 shares held by Jaishree Deshpande, as Trustee of the Gururaj
Deshpande Grantor Retained Annuity Trust. Jaishree Deshpande is Mr.
Deshpande's wife. Mr. Deshpande disclaims beneficial ownership of the
shares held by the Deshpande Irrevocable Trust.
(2) Composed of 11,328,180 shares held by Matrix Partners V, L.P. and
1,258,689 shares held by Matrix V Entrepreneurs Fund, L.P. Matrix V
Management Co., L.L.C. is the general partner of each of Matrix Partners
V, L.P. and Matrix V Entrepreneurs Fund, L.P. Mr. Barrows and Mr. Ferri,
directors of Sycamore, are general partners of Matrix V Management Co.,
L.L.C. Mr. Barrows and Mr. Ferri disclaim beneficial ownership of the
shares held by Matrix Partners V, L.P. and Matrix V Entrepreneurs Fund,
L.P. except to the extent of their pecuniary interests therein arising
from their general partnership interests in Matrix V Management Co.,
L.L.C.
(3) Mr. Gerdelman was elected to our board of directors in September 1999.
48
<PAGE>
DESCRIPTION OF CAPITAL STOCK
After this offering, the authorized capital stock of Sycamore will consist
of 250,000,000 shares of common stock, $.001 par value per share, and
5,000,000 shares of preferred stock, $.01 par value per share. As of July 31,
1999, there were outstanding:
. 70,556,337 shares of common stock held by 138 stockholders of record,
assuming the conversion into common stock of all outstanding shares of
redeemable convertible preferred stock, and
. options to purchase an aggregate of 1,686,300 shares of common stock.
Based upon the number of shares outstanding as of that date, and giving
effect to the issuance of the shares of common stock offered by Sycamore in
this offering, there will be 77,056,337 shares of common stock outstanding
upon the closing of this offering.
The following summary of provisions of our securities, various provisions
of our amended and restated certificate of incorporation and our amended and
restated bylaws and provisions of applicable law is not intended to be
complete and is qualified by reference to the provisions of applicable law and
to our amended and restated certificate of incorporation and amended and
restated bylaws included as exhibits to the Registration Statement of which
this prospectus is a part. See "Where You Can Find More Information."
Common Stock
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive
proportionately any such dividends declared by the board of directors, subject
to any preferential dividend rights of outstanding preferred stock. Upon the
liquidation, dissolution or winding up of Sycamore, the holders of common
stock are entitled to receive ratably the net assets of Sycamore available
after the payment of all debts and other liabilities and subject to the prior
rights of any outstanding preferred stock. Holders of common stock have no
preemptive, subscription, redemption or conversion rights. The rights,
preferences and privileges of holders of common stock are subject to the
rights of the holders of shares of any series of preferred stock which
Sycamore may designate and issue in the future. Certain holders of common
stock have the right to require Sycamore to register their shares of common
stock under the Securities Act in certain circumstances. See "Shares Eligible
for Future Sale."
Preferred Stock
Under the terms of our amended and restated certificate of incorporation to
be filed as of the closing of this offering, the board of directors is
authorized to issue shares of preferred stock in one or more series without
stockholder approval. The board has discretion to determine the rights,
preferences, privileges and restrictions, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences
of each series of preferred stock.
The purpose of authorizing the board of directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated
with a stockholder vote on specific issuances. The issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could make it more difficult for a
third party to acquire, or could discourage a third party from acquiring, a
majority of the outstanding voting stock of Sycamore. Sycamore has no present
plans to issue any shares of preferred stock.
Delaware Law and Certain Charter and By-Law Provisions; Anti-Takeover Effects
Sycamore is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. In general, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person
49
<PAGE>
became an interested stockholder, unless the business combination is approved
in a prescribed manner. A "business combination" includes mergers, asset sales
and other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within three
years did own, 15% or more of the corporation's voting stock.
The amended and restated certificate of incorporation and amended and
restated by-laws to be effective on the closing of this offering provide:
. that the board of directors be divided into three classes, as nearly
equal in size as possible, with staggered three-year terms;
. that directors may be removed only for cause by the affirmative vote of
the holders of at least 66 2/3% of the shares of our capital stock
entitled to vote; and
. that any vacancy on the board of directors, however occurring, including
a vacancy resulting from an enlargement of the board, may only be filled
by vote of a majority of the directors then in office.
The classification of the board of directors and the limitations on the
removal of directors and filling of vacancies could have the effect of making
it more difficult for a third party to acquire, or of discouraging a third
party from acquiring, Sycamore.
The amended and restated certificate of incorporation and amended and
restated by-laws also provide that, after the closing of this offering:
. any action required or permitted to be taken by the stockholders at an
annual meeting or special meeting of stockholders may only be taken if it
is properly brought before such meeting and may not be taken by written
action in lieu of a meeting; and
. special meetings of the stockholders may only be called by the Chairman
of the board of directors, the President, or by the board of directors.
Our amended and restated by-laws provide that, in order for any matter to
be considered "properly brought" before a meeting, a stockholder must comply
with requirements regarding advance notice to us. These provisions could delay
until the next stockholders' meeting stockholder actions which are favored by
the holders of a majority of our outstanding voting securities. These
provisions may also discourage another person or entity from making a tender
offer for our common stock, because such person or entity, even if it acquired
a majority of our outstanding voting securities, would be able to take action
as a stockholder (such as electing new directors or approving a merger) only
at a duly called stockholders meeting, and not by written consent.
Delaware's corporation law provides generally that the affirmative vote of
a majority of the shares entitled to vote on any matter is required to amend a
corporation's certificate of incorporation or by-laws, unless a corporation's
certificate of incorporation or by-laws, as the case may be, requires a
greater percentage. Our amended and restated certificate of incorporation
requires the affirmative vote of the holders of at least 66 2/3% of the shares
of our capital stock entitled to vote to amend or repeal any of the foregoing
provisions of our amended and restated certificate of incorporation. Generally
our amended and restated by-laws may be amended or repealed by a majority vote
of the board of directors or the holders of a majority of the shares of our
capital stock issued and outstanding and entitled to vote. To amend our
amended and restated by-laws regarding special meetings of stockholders,
written actions of stockholders in lieu of a meeting, and the election,
removal and classification of members of the board of directors requires the
affirmative vote of the holders of at least 66 2/3% of the shares of our
capital stock entitled to vote. The stockholder vote would be in addition to
any separate class vote that might in the future be required pursuant to the
terms of any series preferred stock that might be outstanding at the time any
such amendments are submitted to stockholders.
50
<PAGE>
Limitation of Liability and Indemnification
Our amended and restated certificate of incorporation provides that our
directors and officers shall be indemnified by us to the fullest extent
authorized by Delaware law. This indemnification would cover all expenses and
liabilities reasonably incurred in connection with their services for or on
behalf of us. In addition, our amended and restated certificate of
incorporation provides that our directors will not be personally liable for
monetary damages to us for breaches of their fiduciary duty as directors,
unless they violated their duty of loyalty to us or our stockholders, acted in
bad faith, knowingly or intentionally violated the law, authorized illegal
dividends or redemptions or derived an improper personal benefit from their
action as directors.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is EquiServe Limited
Partnership.
51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 77,056,337 shares of common
stock outstanding (assuming no exercise of outstanding options). Of these
shares, the 6,500,000 shares to be sold in this offering will be freely
tradable without restriction or further registration under the Securities Act
of 1933, as amended, except that any shares purchased by our affiliates, as
that term is defined in Rule 144 under the Securities Act, may generally only
be sold in compliance with the limitations of Rule 144 described below.
Sales of Restricted Shares
<TABLE>
<CAPTION>
Approximate
Shares
Eligible
Days After Date of for Future
This Prospectus Sale Comment
------------------ ----------- -------
<S> <C> <C>
On effectiveness................. 6,500,000 Freely tradeable sold in offering
90 days after effectiveness...... 269,950 Shares salable under Rule 144 and 701
180 days after effectiveness..... 54,603,388 Shares salable under
Rule 144, 144(k) or 701
</TABLE>
Certain of the shares listed in the foregoing table as not being salable
until 180 days after effectiveness may become salable earlier as described
below under "Lock-up Agreements".
In general, under Rule 144, a person (or persons whose shares are
aggregated), including an affiliate, who has beneficially owned shares for at
least one year is entitled to sell, within any three-month period, a number of
such shares that does not exceed the greater of (1) one percent of the then
outstanding shares of common stock (approximately 770,563 shares immediately
after this offering) or (2) the average weekly trading volume in the common
stock in the over-the-counter market during the four calendar weeks preceding
the date on which notice of such sale is filed, provided certain requirements
concerning availability of public information, manner of sale and notice of
sale are satisfied. In addition, our affiliates must comply with the
restrictions and requirements of Rule 144, other than the one-year holding
period requirement, in order to sell shares of common stock which are not
restricted securities.
Under Rule 144(k), a person who is not an affiliate and has not been an
affiliate for at least three months prior to the sale and who has beneficially
owned shares for at least two years may resell such shares without compliance
with the foregoing requirements. In meeting the one- and two-year holding
periods described above, a holder of shares can include the holding periods of
a prior owner who was not an affiliate. The one-and two-year holding periods
described above do not begin to run until the full purchase price or other
consideration is paid by the person acquiring the shares from the issuer or an
affiliate. Rule 701 provides that currently outstanding shares of common stock
acquired under our employee compensation plans, and shares of common stock
acquired upon exercise of presently outstanding options granted under these
plans, may be resold beginning 90 days after the date of this prospectus:
. by persons, other than affiliates, subject only to the manner of sale
provisions of Rule 144, and
. by affiliates under Rule 144 without compliance with its one-year
minimum holding period, subject to certain limitations.
Stock Options
At July 31, 1999, approximately 1,686,300 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
1,826,643 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 20,054,900 shares of common stock issuable under our stock plans,
including the 1,686,300 shares of common stock subject to outstanding options
as of July 31, 1999. This registration statement is expected to become
effective upon filing.
52
<PAGE>
Lock-up Agreements
All officers and directors and certain stockholders holding an aggregate of
approximately 66,016,284 shares of Sycamore's Common Stock have agreed,
subject to certain exceptions, not to offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly (or enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of), any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for shares of
Common Stock for a period of 180 days after the date of this Prospectus,
without the prior written consent of Morgan Stanley & Co. Incorporated.
However, if the reported last sale price of the Common Stock on the Nasdaq
National Market is at least twice the initial public offering price per share
for 20 of the 30 trading days ending on the last trading day preceding the
90th day after the date of this Prospectus, 25% of the shares of Common Stock
of Sycamore subject to the 180 day restriction described above (none of which
may be held by officers or directors) will be released from these
restrictions. The release of these shares will occur on the later to occur of:
. the 90th day after the date of this Prospectus if Sycamore makes its
first post-offering public release of its quarterly or annual earnings
results during the period beginning on the eleventh trading day after
the date of this Prospectus and ending on the day prior to the 90th day
after the date of this Prospectus, or
. on the second trading day following the first public release of
Sycamore's quarterly or annual results occurring on or after the 90th
day after the date of this Prospectus, if Sycamore does not make its
first post-offering public release as set forth in the preceding clause.
Morgan Stanley & Co. Incorporated may in its sole discretion choose to release
any or all of these shares from such restrictions prior to the expiration of
such 90 or 180-day period.
Registration Rights
After this offering, the holders of approximately 57,858,000 shares of
common stock will be entitled to rights with respect to the registration of
such shares under the Securities Act. Under the terms of the agreement between
us and the holders of such registrable securities, if we propose to register
any of our securities under the Securities Act, either for our own account or
for the account of other security holders exercising registration rights, such
holders are entitled to notice of such registration and are entitled to
include shares of such common stock therein. Additionally, such holders are
also entitled to demand registration rights pursuant to which they may require
us on up to two occasions to file a registration statement under the
Securities Act at our expense with respect to shares of our common stock, and
we are required to use our best efforts to effect such registration. Further,
holders may require us on up to three occasions to file additional
registration statements on Form S-3 at our expense. All of these registration
rights are subject to conditions and limitations, among them the right of the
underwriters of an offering to limit the number of shares included in such
registration.
53
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in the underwriting
agreement dated the date hereof, the underwriters named below, for whom Morgan
Stanley & Co. Incorporated, Lehman Brothers Inc, J. P. Morgan Securities Inc
and Dain Rauscher Wessels, a division of Dain Rauscher Incorporated, are
acting as representatives, have severally agreed to purchase, and we have
agreed to sell to them, an aggregate of 6,500,000 shares of common stock. The
number of shares of common stock that each underwriter has agreed to purchase
is set forth opposite its name below:
<TABLE>
<CAPTION>
Number of
Name Shares
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated...............................
Lehman Brothers Inc.............................................
J. P. Morgan Securities Inc.....................................
Dain Rauscher Wessels...........................................
---------
Total......................................................... 6,500,000
=========
</TABLE>
The underwriters are offering the shares subject to their acceptance of the
shares from us and subject to prior sale. The underwriting agreement provides
that the obligations of the several underwriters to pay for and accept
delivery of the shares of common stock offered hereby are subject to the
approval of certain legal matters by their counsel and to certain other
conditions. The underwriters are obligated to take and pay for all of the
shares of common stock offered hereby, other than those covered by the over-
allotment option described below, if any such shares are taken.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the initial public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ 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 975,000 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 the 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 $ .
54
<PAGE>
At our request, the underwriters have reserved at the initial public
offering price up to approximately 40,000 shares of common stock for sale to
Williams Communications. There can be no assurance that any of the reserved
shares will be purchased. In addition, at our request, the underwriters have
reserved up to approximately 649,000 shares of common stock to be sold in the
offering and offered hereby for sale, at the initial public offering price, to
our officers, employees, customers and other business associates. The number
of shares of common stock available for sale to the general public will be
reduced to the extent these parties purchase such reserved shares. Any
reserved shares which are not so purchased will be offered by the underwriters
to the general public on the same basis as the other shares offered hereby.
There can be no assurance that any of the reserved shares will be purchased.
Sycamore, our directors, officers and certain other of our stockholders
have each agreed, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the underwriters, during the period ending 180 days
after the date of this prospectus, not to, directly or indirectly:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock (whether
such shares or any such securities are then owned by such person or are
thereafter acquired directly from us); or
. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of common
stock,
whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise, subject, in
certain circumstances for shares held by stockholders other than officers and
directors of Sycamore, to earlier release. See "Shares Eligible for Future
Sale--Lock-up Agreements".
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
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 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.
55
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock we are offering will be passed
upon for us by Hale and Dorr LLP, Boston, Massachusetts. Certain legal matters
in connection with this offering will be passed upon for the underwriters by
Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The financial statements as of July 31, 1998 and 1999 and for the period
from inception (February 17, 1998) through July 31, 1998 and for the year
ended July 31, 1999 included in this prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common
stock we propose to sell in this offering. This prospectus, which constitutes
part of the registration statement, does not contain all of the information
set forth in the registration statement. For further information about us and
the common stock we propose to sell in this offering, we refer you to the
registration statement and the exhibits and schedules filed as a part of the
registration statement. Statements contained in this prospectus as to the
contents of any contract or other document filed as an exhibit to the
registration statement are not necessarily complete. If a contract or document
has been filed as an exhibit to the registration statement, we refer you to
the copy of the contract or document that has been filed. The registration
statement may be inspected without charge at the principal office of the
Securities and Exchange Commission in Washington, D.C. and copies of all or
any part of which may be inspected and copied at the public reference
facilities maintained by the Securities and Exchange Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Room 1024, Washington, D.C. 20549, and at the
Commission's regional offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of such material can also be
obtained at prescribed rates by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the
Securities and Exchange Commission maintains a website (http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and
Exchange Commission.
56
<PAGE>
SYCAMORE NETWORKS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants.......................................... F-2
Balance Sheets at July 31, 1998 and July 31, 1999.......................... F-3
Statements of Operations for the period from inception (February 17, 1998)
through July 31, 1998 and the year ended July 31, 1999.................... F-4
Statements of Stockholders' Deficit for the period from inception (February
17, 1998) through July 31, 1998 and the year ended July 31, 1999.......... F-5
Statements of Cash Flows for the period from inception (February 17, 1998)
through July 31, 1998 and the year ended July 31, 1999.................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Stockholders and the Board of Directors of Sycamore Networks, Inc.:
In our opinion, the accompanying balance sheets and the related statements
of operations, stockholders' deficit and cash flows present fairly, in all
material respects, the financial position of Sycamore Networks, Inc. at July
31, 1998 and 1999, and the results of its operations and its cash flows for
the period from inception (February 17, 1998) to July 31, 1998 and for the
year ended July 31, 1999 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 23, 1999
F-2
<PAGE>
SYCAMORE NETWORKS, INC.
BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
Pro Forma
July 31, July 31, July 31, 1999
1998 1999 (unaudited)
-------- -------- -------------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................... $1,197 $ 21,969 $ 21,969
Marketable securities....................... 3,082 7,020 7,020
Accounts receivable......................... -- 11,410 11,410
Inventories................................. -- 6,608 6,608
Prepaids and other current assets........... 200 5,153 5,153
------ -------- --------
Total current assets......................... 4,479 52,160 52,160
Property and equipment, net.................. 500 5,288 5,288
Other assets................................. 102 464 464
------ -------- --------
Total assets................................. $5,081 $ 57,912 $ 57,912
====== ======== ========
Liabilities, Redeemable Convertible Preferred
Stock and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of notes payable............ $ -- $ 1,097 $ 1,097
Accounts payable............................ 42 5,750 5,750
Accrued compensation........................ 30 1,403 1,403
Accrued expenses............................ 66 1,751 1,751
Other current liabilities................... -- 1,709 1,709
------ -------- --------
Total current liabilities.................... 138 11,710 11,710
Notes payable................................ -- 4,054 4,054
Commitments and contingencies (Note 5)
Series A Redeemable Convertible Preferred
Stock $.01 par value; 6,380,000 and
8,975,000 shares authorized at July 31, 1998
and July 31, 1999, respectively; 6,186,812
and 8,961,812 shares issued and outstanding
at July 31, 1998 and July 31, 1999,
respectively; 0 shares authorized, issued
and outstanding on a pro forma basis;
liquidation value of $8,155 at July 31,
1999........................................ 5,621 8,146 --
Series B Redeemable Convertible Preferred
Stock $.01 par value; 3,625,000 shares
authorized at July 31, 1999; 3,607,062
shares issued and outstanding at July 31,
1999; 0 shares authorized, issued and
outstanding on a pro forma basis;
liquidation value of $12,625 at July 31,
1999........................................ -- 12,625 --
Series C Redeemable Convertible Preferred
Stock $.01 par value; 2,500,000 shares
authorized, issued and outstanding at July
31, 1999; 0 shares authorized, issued and
outstanding on a pro forma basis;
liquidation value of $20,000 at July 31,
1999........................................ -- 20,000 --
Series D Redeemable Convertible Preferred
Stock $.01 par value; 692,201 shares
authorized, issued and outstanding at July
31, 1999; 0 shares authorized, issued and
outstanding on a pro forma basis;
liquidation value of $15,000 at July 31,
1999........................................ -- 15,000 --
Stockholders' equity (deficit):
Preferred stock, $.01 par value, 5,000,000
shares authorized, 0 shares issued and
outstanding on a pro forma basis........... -- -- --
Common stock, $.001 par value; 91,000,000
shares authorized; 7,035,000 and 23,273,112
shares issued and outstanding at July 31,
1998 and July 31, 1999, respectively;
250,000,000 shares authorized; 70,556,337
shares issued and outstanding on a pro
forma basis................................ 7 23 71
Additional paid-in capital.................. 187 31,010 86,733
Accumulated deficit......................... (693) (20,183) (20,183)
Notes receivable............................ -- (360) (360)
Deferred compensation....................... (179) (24,113) (24,113)
------ -------- --------
Total stockholders' equity (deficit)......... (678) (13,623) 42,148
------ -------- --------
Total liabilities, redeemable convertible
preferred stock and stockholders' equity
(deficit)................................... $5,081 $ 57,912 $ 57,912
====== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
SYCAMORE NETWORKS, INC.
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Period from Inception
(February 17, 1998) Year Ended
through July 31, 1998 July 31, 1999
--------------------- -------------
<S> <C> <C>
Revenues.................................. $ -- $ 11,330
Cost of revenues.......................... -- 8,486
----- --------
Gross profit.............................. -- 2,844
Operating expenses:
Research and development................. 497 13,955
Sales and marketing...................... 92 4,064
General and administrative............... 199 1,405
Amortization of stock compensation....... 5 3,469
----- --------
Total operating expenses................. 793 22,893
----- --------
Loss from operations...................... (793) (20,049)
Interest income, net...................... 100 559
----- --------
Net loss.................................. $(693) $(19,490)
===== ========
Basic and diluted net loss per share...... (.55) $ (6.27)
Weighted average shares used in computing
basic and diluted net loss per share..... 1,251 3,108
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
SYCAMORE NETWORKS, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
(in thousands)
<TABLE>
<CAPTION>
Common Stock
-------------
Additional Total
paid-in Accumulated Notes Deferred Stockholders'
Shares Amount Capital Deficit Receivable Compensation Deficit
------ ------ ---------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock.................. 7,035 $ 7 $ 3 $ -- $ -- $ -- $ 10
Deferred compensation
expense associated with
equity awards.......... -- -- 184 -- -- (184) --
Amortization of deferred
compensation........... -- -- -- -- -- 5 5
Net loss................ -- -- -- (693) -- -- (693)
------ --- ------- -------- ----- -------- --------
Balance, July 31, 1998.. 7,035 7 187 (693) -- (179) (678)
------ --- ------- -------- ----- -------- --------
Exercise of stock
options................ 6,074 6 2,935 -- -- -- 2,941
Issuance of common
stock.................. 10,164 10 485 -- -- -- 495
Deferred compensation
expense associated with
equity awards.......... -- -- 25,343 -- -- (25,343) --
Issuance of equity
awards in exchange for
services............... -- -- 2,060 -- -- -- 2,060
Amortization of deferred
compensation........... -- -- -- -- -- 1,409 1,409
Issuance of common stock
in exchange for notes
receivable............. -- -- -- -- (360) -- (360)
Net loss................ -- -- -- (19,490) -- -- (19,490)
------ --- ------- -------- ----- -------- --------
Balance, July 31, 1999.. 23,273 $23 $31,010 $(20,183) $(360) $(24,113) $(13,623)
====== === ======= ======== ===== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
SYCAMORE NETWORKS, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Period from
inception
(February 17, 1998)
through Year Ended
July 31, 1998 July 31, 1999
------------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................... $ (693) $(19,490)
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization.............. 27 948
Amortization of stock compensation......... 5 3,469
Changes in operating assets and liabilities:
Accounts receivable........................ -- (11,410)
Inventories................................ -- (6,608)
Prepaids and other current assets.......... (75) (4,953)
Accounts payable........................... 42 5,708
Accrued expenses and other current
liabilities............................... 96 4,767
------- --------
Net cash used in operating activities........ (598) (27,569)
------- --------
Cash flows from investing activities:
Purchases of property and equipment........ (528) (552)
Purchases of marketable securities......... (3,082) (10,115)
Maturities of marketable securities........ -- 6,177
Increase in other assets................... (102) (362)
------- --------
Net cash used in investing activities........ (3,712) (4,852)
------- --------
Cash flows from financing activities:
Proceeds from issuance of redeemable
convertible preferred stock, net.......... 5,496 50,150
Proceeds from issuance of common stock..... 11 3,076
Payments on notes payable.................. -- (33)
------- --------
Net cash provided by financing activities.... 5,507 53,193
------- --------
Net increase in cash and cash equivalents.... 1,197 20,772
Cash and cash equivalents, beginning of
period...................................... -- 1,197
------- --------
Cash and cash equivalents, end of period..... $ 1,197 $ 21,969
======= ========
Supplemental cash flow information:
Cash paid for interest..................... $ -- $ 170
Supplementary non cash activity:
Equipment acquired under notes payable..... $ -- $ 5,184
Preferred stock note receivable............ 125 --
Issuance of common stock in exchange for
notes receivable.......................... -- 360
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
SYCAMORE NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Business:
Sycamore Networks, Inc. (the "Company") was incorporated in Delaware on
February 17, 1998. The Company develops and markets networking products that
enable service providers to quickly and cost effectively provide bandwidth and
create new high-speed data services. To date, the Company has principally
marketed its products in the United States. Through May 1, 1999, the Company
was considered to be in the development stage and was principally engaged in
research and development, raising capital and building its management team.
The Company shipped its first product in May 1999.
The Company is subject to risks common to technology-based companies
including, but not limited to, the development of new technology, development
of markets and distribution channels, dependence on key personnel, and the
ability to obtain additional capital as needed to meet its product plans. The
Company has a limited operating history and has never achieved profitability.
To date the Company has been funded principally by private equity financing.
The Company's ultimate success is dependent upon its ability to raise
additional capital and to successfully develop and market its products.
2. Significant Accounting Policies:
The accompanying financial statements of the Company reflect the
application of certain significant accounting policies as described below:
Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents, and
investments with original maturity dates greater than three months but less
than 12 months to be short-term investments. The Company classifies all
marketable securities as available-for-sale. The securities are stated at
their fair market value. At July 31, 1998 and 1999, the fair value of
marketable securities, which were comprised of commercial paper and
certificates of deposit, approximated amortized cost and, as such, unrealized
holding gains and losses were not material. The fair value of marketable
securities was determined based on quoted market prices at the reporting date
for those instruments.
Inventory
Inventories are stated at the lower of cost (first-in, first-out basis) or
market (net realizable value).
Revenue Recognition
Revenue from product sales is recognized upon shipment provided that a
purchase order has been received or a contract has been executed, there are no
uncertainties regarding customer acceptance, the fee is fixed and determinable
and collectibility is deemed probable. If uncertainties regarding customer
acceptance exist, revenue is recognized when such uncertainties are resolved.
Revenue from technical support and maintenance contracts is deferred and
recognized ratably over the period of the related agreements. The Company
records a warranty liability for parts and labor on its products. Warranty
periods are generally three years from installation date. Estimated warranty
costs are recorded at the time of revenue recognition.
F-7
<PAGE>
SYCAMORE NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Property and Equipment
Property and equipment is stated at cost and depreciated over the estimated
useful lives of the assets using the straight-line method, based upon the
following asset lives:
<TABLE>
<S> <C>
Computer and
telecommunications
equipment.................. 2 to 3 years
Computer software........... 2 to 3 years
Furniture and office
equipment.................. 5 years
Leasehold improvements...... Shorter of lease term or useful life of asset
</TABLE>
The cost of significant additions and improvements is capitalized and
depreciated while expenditures for maintenance and repairs are charged to
expense as incurred. Upon retirement or sale, the cost and related accumulated
depreciation of the assets are removed from the accounts and any resulting
gain or loss is reflected in the determination of net income or loss.
Research and Development and Software Development Costs
The Company's products are highly technical in nature and require a large
and continuing research and development effort. All research and development
costs are expensed as incurred. Software development costs incurred prior to
the establishment of technological feasibility are charged to expense.
Technological feasibility is demonstrated by the completion of a working
model. Software development costs incurred subsequent to the establishment of
technological feasibility are capitalized until the product is available for
general release to customers. Amortization is based on the greater of (i) the
ratio that current gross revenues for a product bear to the total of current
and anticipated future gross revenues for that product or (ii) the straight-
line method over remaining estimated life of the product. To date, the period
between achieving technological feasibility and the general availability of
the related products has been short and software development costs qualifying
for capitalization have not been material. Accordingly, the Company has not
capitalized any software development costs.
Income Taxes
Income taxes are accounted for under the liability method. Under this
method, deferred tax assets and liabilities are recorded based on temporary
differences between the financial statement amounts and the tax bases of
assets and liabilities measured using enacted tax rates in effect for the year
in which the differences are expected to reverse. The Company periodically
evaluates the realizability of its net deferred tax assets and records a
valuation allowance if, based on the weight of available evidence, it is more
likely than not that some or all of the deferred tax assets will not be
realized.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
dates of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
Concentrations of Credit Risk and Significant Customer Information
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents,
marketable securities and accounts receivable. The Company invests its excess
cash primarily in deposits with commercial banks and high-quality corporate
securities. For the year ended July 31, 1999, one customer accounted for all
of the Company's revenue. The Company does not require collateral for sales to
customers.
F-8
<PAGE>
SYCAMORE NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Certain components and parts used in the Company's products are procured
from a single source. The Company obtains parts from one vendor only, even
where multiple sources are available, to maintain quality control and enhance
working relationships with suppliers. These purchases are made under existing
contracts or purchase orders. The failure of a supplier, including
subcontractor, to deliver on schedule could delay or interrupt the Company's
delivery of products and thereby adversely affect the Company's revenues and
profits.
Other Comprehensive Income
The Company reports comprehensive income (loss) in accordance with
Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive
Income" (FAS 130). The comprehensive net loss for the period from inception
(February 17, 1998) through July 31, 1998 and for the year ended July 31, 1999
does not differ from the reported net loss.
Net Loss Per Share
Basic net loss per share is computed by dividing the net loss for the
period by the weighted average number of common shares outstanding during the
period. Diluted net loss per share is computed by dividing the net loss for
the period by the weighted average number of common and common equivalent
shares outstanding during the period, if dilutive. Common equivalent shares
are composed of unvested shares of restricted common stock and the incremental
common shares issuable upon the exercise of stock options and unvested
restricted common shares. There were no dilutive common equivalent shares for
the period.
Pro forma net loss per share for the period from inception (February 17,
1998) through July 31, 1998 and the year ended July 31, 1999 is computed using
the weighted average number of common shares outstanding, including the pro
forma effects of the automatic conversion of the Company's Series A, B, C and
D redeemable convertible preferred stock into shares of the Company's common
stock effective upon the closing of the Company's initial public offering as
if such conversion occurred at the date of original issuance. There were no
dilutive common equivalent shares for any of the periods presented.
F-9
<PAGE>
SYCAMORE NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table sets forth the computation of basic and diluted net
loss per share:
<TABLE>
<CAPTION>
Period from inception
(February 17, 1998) Year Ended
through July 31, 1998 July 31, 1999
--------------------- -------------
(in thousands, except per share
data)
<S> <C> <C>
Numerator:
Net loss.................................. $ (693) $(19,490)
Denominator
Historical:
Weighted average common shares
outstanding.............................. 6,507 15,195
Weighted average common shares outstanding
subject to repurchase.................... (5,256) (12,087)
------ --------
Denominator for basic and diluted
calculation.............................. 1,251 3,108
------ --------
Basic and diluted net loss per share...... $ (.55) $ (6.27)
====== ========
Pro Forma:
Historical weighted average common shares
outstanding.............................. 3,108
Weighted average number of shares assumed
upon conversion of redeemable convertible
common stock............................. 35,037
--------
Shares used in computing pro forma basic
and diluted net loss per share
(unaudited).............................. 38,145
========
Pro forma basic and diluted net loss per
share (unaudited)........................ $ (.51)
========
</TABLE>
Options to purchase 1,686,300 shares of common stock at an average exercise
price of $1.36 per share has not been included in the computation of diluted
net loss per share for the year ended July 31, 1999 as their effect would have
been anti-dilutive.
Pro Forma Balance Sheet (Unaudited)
Upon the closing of the Company's initial public offering, all of the
outstanding shares of Series A, B, C and D redeemable convertible preferred
stock will automatically convert into 47,283,225 shares of the Company's
common stock. The unaudited pro forma presentation of the balance sheet has
been prepared assuming the conversion of the preferred stock into common stock
as of July 31, 1999.
Stock Based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No.
25,"Accounting for Stock Issued to Employees," ("APB No. 25") and complies
with the disclosure provisions of Statement of Financial Accounting Standards
No. 123,"Accounting for Stock-Based Compensation," ("SFAS No. 123").
Segment Information
The Company has adopted Statement of Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information,"
which requires companies to report selected information about operating
segments, as well as enterprise-wide disclosures about products, services,
geographic areas, and major customers. Operating segments are determined based
on the way management organizes its business for making operating decisions
and assessing performance. The Company has determined that it conducts its
operations in one business segment.
F-10
<PAGE>
SYCAMORE NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Recent Accounting Pronouncements
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"). SOP 98-5, which is effective for fiscal years beginning after
December 15, 1998, provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start up activities and
organization costs to be expensed as incurred. Adoption of this standard did
not have a material impact on our financial condition or 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
currently expected to have an impact on our financial condition or results of
operations.
3. Inventory
Inventory consisted of the following at July 31, 1999 (in thousands):
<TABLE>
<CAPTION>
1999
------
<S> <C>
Raw materials............................................................ $2,164
Work in process.......................................................... 3,026
Finished goods........................................................... 1,418
------
$6,608
======
</TABLE>
4. Property and Equipment
Property and equipment consisted of the following at July 31, 1998 and 1999
(in thousands):
<TABLE>
<CAPTION>
1998 1999
---- ------
<S> <C> <C>
Computer software and equipment................................... $500 $5,433
Furniture and office equipment.................................... 27 221
Leasehold improvements............................................ -- 609
---- ------
527 6,263
Less accumulated depreciation and amortization.................... (27) (975)
---- ------
$500 $5,288
==== ======
</TABLE>
Depreciation and amortization expense was $27,000 for the period from
inception (February 17, 1998) through July 31, 1998 and $948,000 for the year
ended July 31, 1999.
F-11
<PAGE>
SYCAMORE NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. Commitments and Contingencies:
Capital and Operating Leases
The Company's office facility is leased under a noncancelable lease that
expires in 2002. The lease is collateralized by an irrevocable standby letter
of credit in the amount of $92,000, which is collateralized by a U.S. Treasury
Bill. Rent expense under operating leases was $27,500 and $266,000 for the
period from inception (February 17, 1998) through July 31, 1998 and the year
ended July 31, 1999, respectively. At July 31, 1999 future minimum lease
payments under all non-cancelable operating leases are as follows, in
thousands:
<TABLE>
<S> <C>
2000...................................................................... $272
2001...................................................................... 319
2002...................................................................... 159
----
Total future minimum lease payments....................................... $750
====
</TABLE>
Letter of Credit
Included in prepaid expenses and other current assets is a $4 million U.S.
Government security which collateralizes a stand-by letter of credit used for
inventory purchases made by a third party manufacturer on behalf of the
Company. The letter of credit is irrevocable and expires in October 1999.
Notes Payable
In August 1998, the Company entered into an equipment loan agreement with a
bank. Under this loan agreement, the Company may borrow up to $1 million, for
the purpose of acquisition of equipment, for a period of ten months. On July
1, 1999 the Company commenced payments to be repaid in thirty equal monthly
installments. At July 31, 1999, $967,000 was outstanding under this loan
agreement.
In April 1999, the Company entered into an additional equipment loan
agreement with the same bank. Under this loan agreement, the Company may
borrow up to $5 million, for the purpose of acquisition of equipment, for a
period of six months. At January 31, 2000, the outstanding balance will be
converted into a term loan, to be repaid in thirty-six equal monthly
installments commencing February 1, 2000. At July 31, 1999, $4,184,000 was
outstanding under this loan agreement.
The interest on the outstanding loan balances is calculated daily at the
bank's prime rate, plus .5% (8.5% at July 31, 1999). The loans are
collateralized by all the Company's assets, including accounts receivable,
inventory and fixed assets. The Company is required to maintain certain
financial covenants and tangible net worth calculations. Principal payments
under notes payable for the years ended July 31, are as follows: $1,097,000 in
2000; $1,795,000 in 2001; $1,562,000 in 2002 and $697,000 in 2003.
6. Stockholders' Equity
Common Stock
The Company has authorized 91,000,000 shares of common stock, $.001 par
value. The voting, dividend and liquidation rights of the holders of the
common stock are subject to, and qualified by, the rights of the holders of
preferred stock. The holders of the common stock are entitled to one vote for
each share held. The Board of
Directors (the "Board") may declare dividends from lawfully available funds,
subject to any preferential dividend rights of any outstanding preferred stock
and restrictions under the Company's loan agreements. Holders of the common
stock are entitled to receive all assets available for distribution on the
dissolution or liquidation of the Company, subject to any preferential rights
of any outstanding preferred stock.
F-12
<PAGE>
SYCAMORE NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
1998 Stock Incentive Plan
In August 1998, the 1998 Stock Incentive Plan (the "Plan") was adopted by
the Board and received stockholder approval on October 19, 1998. A total of
26,565,000 shares of common stock have been reserved for issuance under the
Plan. The Plan provides for the grant of incentive stock options, nonstatutory
stock options, restricted stock awards and other stock-based awards to
officers, employees, directors, consultants and advisors of the Company. No
participant may receive any award for more than 500,000 shares in any calendar
year. Options may be granted at an exercise price less than, equal to or
greater than the fair market value on the date of grant. The Board determines
the term of each option, the option exercise price, and the vesting terms.
Stock options generally expire ten years from the date of grant and vest over
five years.
All employees who have been granted options by the Company under the 1998
Stock Incentive Plan are eligible to elect immediate exercise of all such
options. However, shares obtained by employees who elect immediate exercise
prior to the original option vesting schedule are subject to the Company's
right of repurchase, at the option exercise price, in the event of
termination. The Company's repurchase rights lapse at the same rate as the
shares would have become exercisable under the original vesting schedule. As
of July 31, 1999, 5,978,700 shares related to immediate option exercises are
subject to repurchase by the Company at per share prices ranging from $.02 to
$3.00 and 18,638,700 were reserved for future issuance.
Restricted Stock
Restricted stock may be issued to employees, officers, directors,
consultants, and other advisors. Shares acquired pursuant to a restricted
stock agreement are subject to a right of repurchase by the Company which
lapses as the restricted stock vests. In the event of termination of services,
the Company has the right to repurchase unvested shares at the original
issuance price. The vesting period is generally five years. The Company issued
7,035,000 and 10,164,312 shares of restricted stock, of which 1,852,500 shares
were issued through the 1998 Stock Incentive Plan, for the period from
inception (February 17, 1998) through July 31, 1998 and the year ended July
31, 1999, respectively. The number of shares of restricted stock outstanding
at July 31, 1999 was 17,199,312 of which 14,038,812 were subject to repurchase
at their original issuance prices ranging from $.001 to $.33.
Deferred Stock Compensation
In connection with the grant of certain stock options and restricted shares
to employees during the period from inception (February 17, 1998) to July 31,
1998 and the year ended July 31, 1999, the Company recorded deferred stock
compensation of $184,000 and $25,300,000, respectively, representing the
difference between the estimated fair market value of the common stock on the
date of grant and the exercise price. Compensation related to options and
restricted shares which vest over time was recorded as a component of
stockholders' deficit and is being amortized over the vesting periods of the
related options. During the period from inception (February 17, 1998) to July
31, 1998 and the year ended July 31, 1999, the Company recorded compensation
expense relating to these options and restricted shares totaling $5,000 and
$1,409,000, respectively.
F-13
<PAGE>
SYCAMORE NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Non-Employee Stock Compensation
During the year ended July 31, 1999, the Company granted 410,100 shares of
common stock awards which were fully vested by July 31, 1999 to non-employees
and recognized compensation expense of $2,060,000. The fair value of each
stock option was estimated using the Black-Scholes option pricing model with
the following weighted-average assumptions: a weighted-average risk free
interest rates of 5.2%, a weighted-average expected option life of 4 years, no
dividend yield and a 60% volatility.
Valuation of Stock Awards
Had compensation cost of our stock awards been determined in accordance
with the provisions of SFAS No. 123, the historical net loss and net loss per
share would have been increased to the pro forma amounts indicated below (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Period from Inception
(February 17,1998) to Year Ended
July 31, 1998 July 31, 1999
--------------------- -------------
<S> <C> <C>
As Reported
Net loss.................................. $(693) $(19,490)
Basic and diluted net loss per share...... $(.55) $ (6.27)
Pro forma
Net loss.................................. $(807) $(21,314)
Basic and diluted net loss per share...... $(.65) $ (6.86)
</TABLE>
The fair value of these stock awards at the date of grant was estimated
using the Black-Scholes model with the following assumptions:
<TABLE>
<CAPTION>
Period from Inception
(February 17, 1998) Year Ended
to July 31, 1998 July 31, 1999
--------------------- -------------
<S> <C> <C>
Risk free interest rate..................... 5.4% 4.5%
Dividend yield.............................. 0% 0%
Expected volatility......................... 0% 0%
Expected life............................... 4 years 5 years
</TABLE>
The weighted average grant date fair value of the stock award granted
during the period from inception (February 17, 1998) to July 31, 1998 and the
year ended July 31, 1999 was $.16 and $1.06 per share, respectively. The pro
forma effect of applying SFAS No. 123 for prior years is not necessarily
representative of pro forma effect to be expected in future years.
All stock option transactions issued under the 1998 stock incentive plan
are summarized as follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
---------- ----------------
<S> <C> <C>
Outstanding at July 31, 1998....................... -- --
Options granted.................................... 7,760,100 $ .48
Options exercised.................................. (6,073,800) .67
Options cancelled.................................. -- --
---------- -----
Outstanding at July 31, 1999....................... 1,686,300 $1.36
========== =====
</TABLE>
F-14
<PAGE>
SYCAMORE NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about stock options outstanding
at July 31, 1999:
<TABLE>
<CAPTION>
Vested Options
Options Outstanding Exercisable
--------------------------------------- -------------------------
Range of Number of Weighted Avg. Weighted Avg. Weighted Avg.
Exercise Shares Remaining Exercise Number Exercise
Prices Outstanding Contract Life Price Exercisable Price
-------- ----------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$.12 40,800 9.55 $ .12 30,000 $ .12
.33 584,700 9.82 .33 30,000 .33
1.00 436,899 9.94 1.00 90,000 1.00
2.00 213,501 9.98 2.00 --
3.00 410,400 10.00 3.00 --
--------- -------
$ .12 -
$3.00 1,686,300 9.91 $1.36 150,000 $ .69
</TABLE>
Stockholder Notes Receivable
At July 31, 1999, the Company held notes receivable in the amount of
$360,000 from stockholders in consideration for the purchase of common stock.
The notes are due five years from the date of issuance and are collateralized
by the underlying common stock and, consequently, are reflected as a component
of stockholders' deficit.
Common Stock Purchase Option
In March 1999, the Company signed a definitive Purchase and License
Agreement (the "Agreement') with a customer to provide certain Company
products. Under the terms of the Agreement, the customer also has the right to
purchase shares of the Company in the Company's initial public offering
("IPO") of shares on a national exchange at the IPO price (estimated to be
$18-$20 per share at the time these financial statements are being prepared)
to an upper limit equal to the number of shares, which when multiplied by the
initial public offering price, equals 5% of the dollar value of the customer's
accumulated purchases of the Company's products and services as of the date of
the initial public offering, but in no event more than 5% of the shares
offered in the IPO. The ability of the customer to exercise its right to
purchase such shares is contingent upon a closing of an IPO. Accordingly, the
measurement date for a charge to record this option would be at the closing of
the IPO. The Company does not believe that this option will have any material
value and any charge will be necessary.
7. Redeemable Convertible Preferred Stock
The Company's Board has authorized 15,792,201 shares of Series A, Series B,
Series C and Series D redeemable convertible preferred stock ("Series A,
Series B, Series C, Series D") at $.01 par value of which 15,761,075 are
issued and outstanding at July 31, 1999. Issuances are as follows:
In February 1998, the Company authorized 6,380,000 shares of Series A
preferred stock.
In February 1998 and April 1998, the Company sold 5,500,000 and 549,450
shares, respectively of Series A at a price of $.91 per share and received
proceeds of approximately $5,505,000. In July 1998, the Company issued 137,362
shares of Series A and received proceeds of approximately $125,000 in October
1998.
In October 1998, the Company sold 2,775,000 shares of Series A at a price
of $.91 per share and received proceeds of approximately $2,525,250.
In December 1998, the Company authorized 3,625,000 shares of Series B $.01
par value. In December 1998 and February 1999, the Company sold 3,607,062
shares of Series B at a price of $3.50 per share and received proceeds of
approximately $12,625,000.
In February 1999, the Company authorized 2,500,000 shares of Series C $.01
par value. In March 1999, the Company sold 2,500,000 shares of Series C at a
price of $8.00 per share and received proceeds of approximately $20,000,000.
F-15
<PAGE>
SYCAMORE NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
In July 1999, the Company authorized 692,201 shares of Series D $.01 par
value. In July 1999, the Company sold 692,201 shares of Series D at a price of
$21.67 per share and received proceeds of approximately $15,000,000.
The terms of Series A, Series B, Series C and Series D redeemable
convertible preferred stock are as follows:
Conversion
Each share of Series A, Series B, Series C and Series D may be converted
into three shares of common stock at any time at the option of the holder,
subject to adjustment for certain events such as a stock split, stock
dividend, or stock issuance. At July 31, 1999, Series A, Series B, Series C
and Series D are convertible into 47,283,225 shares of common stock. Upon the
earlier of the closing of an initial public offering of the Company's common
stock at a price which equals or exceeds $9.67 per share and results in
proceeds of a least $10,000,000, or the date on which at least 10,000,000
shares of preferred stock have been converted to common stock, all outstanding
shares of preferred stock automatically convert into shares of common stock.
Dividend and Voting Rights
When and if declared by the Company's Board, dividends on Series A, Series
B, Series C and Series D are payable in cash in preference and prior to any
payment of any dividend on common shares. The holders are entitled to the per
share amount of dividends or distributions declared for common stock,
multiplied by the number of shares of common stock into which the preferred
stock is convertible. The holders are entitled to vote on all matters and are
entitled to the number of votes equal to the number of common shares into
which the Series A, Series B, Series C and Series D, are convertible as of the
date of record.
Liquidation Preference
In the event of any liquidation, dissolution, or winding up of the Company,
the holders of Series A, Series B, Series C and Series D are entitled to
receive, prior and in preference to any payment or distribution of any assets
or surplus funds of the Company to holders of the common shares, an amount for
each share of Series A, Series B, Series C and Series D held, equal to $.91,
$3.50, $8.00 and $21.67, respectively, plus any declared and unpaid dividends.
The liquidation preferences are subject to adjustment in the event of any
stock dividend, stock split, combination or other similar recapitalization.
Redemption
If the holders of at least a majority of Series A, Series B, Series C and
Series D preferred stock, at any time after February 26, 2004, so demand, the
Company will be required to redeem 33% of the shares outstanding, an
additional 50% on February 26, 2005 and all shares remaining on February 26,
2006. The redemption prices of each share of Series A, Series B, Series C and
Series D are $.91, $3.50, $8.00 and $21.67, respectively plus all declared and
unpaid dividends, if any.
F-16
<PAGE>
SYCAMORE NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table sets forth the redeemable convertible preferred stock
activity (in thousands):
<TABLE>
<CAPTION>
Series A Series B Series C Series D Total
------------- -------------- -------------- -------------- --------------
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance--
February
1998 5,500 $5,005 5,500 $ 5,005
Issuance--
April
1998 550 500 550 500
Issuance--
July 1998 137 116 137 116
----- ------ ------ -------
Balance
July 31,
1998 6,187 5,621 6,187 5,621
----- ------ ------ -------
Issuance--
October
1998 2,775 2,525 2,775 2,525
Issuance--
December
1998 3,506 $12,270 3,506 12,270
Issuance--
February
1999 101 355 101 355
Issuance--
March
1999 2,500 $20,000 2,500 20,000
Issuance--
July 1999 692 $15,000 692 15,000
----- ------ ----- ------- ----- ------- --- ------- ------ -------
Balance
July 31,
1999 8,962 $8,146 3,607 $12,625 2,500 $20,000 692 $15,000 15,761 $55,771
----- ------ ----- ------- ----- ------- --- ------- ------ -------
</TABLE>
8. Income Tax
No provision for taxes has been recorded since the Company has incurred
losses since inception.
The components of the net deferred tax asset as of July 31, 1998 and 1999
are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
----- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.............................. $ 122 $ 6,163
Capitalized start up costs.................................... 124 98
Research and development credits.............................. 15 515
Other......................................................... 6 63
----- -------
267 6,839
Deferred tax liabilities:
Depreciation.................................................. -- 196
----- -------
Net deferred tax asset........................................ 267 6,643
Valuation allowance........................................... (267) (6,643)
----- -------
Net deferred tax asset........................................ $ -- $ --
===== =======
</TABLE>
At July 31, 1999, the Company has available net operating loss
carryforwards for federal and state tax income purposes of approximately $16.6
million available to offset future taxable income which expire in varying
amounts beginning in 2019 and 2004, respectively. As required by statement of
Financial Accounting Standards No. 109, " Accounting for Income Taxes," the
management of the Company has evaluated the positive and negative evidence
bearing upon the realizability of its deferred tax assets and has established
a full valuation allowance for such assets. which are comprised principally of
net operating loss carryforwards. Management reevaluates the positive and
negative evidence periodically. The net operating loss carryforwards could be
limited in future years if there is a significant change in the Company's
ownership.
9. Employee Benefit Plan:
The Company sponsors a defined contribution plan covering substantially all
of its employees which is designed to be qualified under Section 401(k) of the
Internal Revenue Code. Eligible employees are permitted to contribute to the
401(k) plan through payroll deductions within statutory and plan limits. The
Company has made no contributions to the plan to date.
F-17
<PAGE>
SYCAMORE NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
10. Subsequent Events
Proposed Public Offering of Common Stock
In August 1999, the Board authorized the Company to proceed with an initial
public offering of its common stock. If the offering is consummated as
presently anticipated, all of the outstanding redeemable convertible preferred
stock will automatically convert into 47,283,225 shares of common stock.
In August 1999, the Board authorized, subject to stockholder approval, an
increase in the authorized shares of the Company's common stock from
91,000,000 to 250,000,000 shares and authorized and approved 5,000,000 shares
of $.01 par value undesignated preferred stock that may be issued by the Board
from time to time in one or more series. This amendment is to be effective
upon the closing of the Company's IPO.
In August 1999, the Company approved a 3-for-1 stock split in the form of a
200% stock dividend of the Company's issued and outstanding common stock and
stock options payable to stockholders of record on August 27, 1999. The
redeemable convertible preferred stock conversion ratio is automatically
adjusted to reflect the split. Additionally, the authorized common stock of
the Company was increased from 32,000,000 to 91,000,000. All common shares,
common options and per share amounts in the accompanying financial statements
have been adjusted to reflect the stock split.
1999 Stock Incentive Plan.
In August 1999, the Board approved, subject to stockholder approval, the
1999 Stock Incentive Plan. The 1999 plan provides for the grant of incentive
stock options, nonstatutory stock options, restricted stock awards and other
stock-based awards to officers, employees, directors, consultants and advisors
of the Company. Shares not yet issued under the 1998 Stock Incentive Plan will
now be available under the 1999 plan. The total amount of shares that may be
issued under the 1999 plan is the remaining shares to be issued under the 1998
Stock Incentive Plan plus an annual increase beginning August 1, 2000 of the
lesser of 3,000,000 or 5% of the outstanding shares on that date.
1999 Employee Stock Purchase Plan.
In August 1999, the Board approved, subject to stockholder approval, the
Employee Stock Purchase Plan. A total of 750,000 shares of common stock have
been reserved for issuance under this plan. Eligible employees may purchase
common stock at a price equal to 85% of the lower of the fair market value of
the common stock at the beginning or end of each six-month offering period.
Participation is limited to 10% of an employee's eligible compensation not to
exceed amounts allowed by the Internal Revenue Code.
1999 Non-Employee Director Option Plan.
In August 1999, the Board approved, subject to stockholder approval, the
1999 Non-Employee Director Option Plan. A total of 500,000 shares of common
stock have been reserved for issuance under this plan.
F-18
<PAGE>
Inside back cover shows Sycamore logo.
<PAGE>
Back cover shows drawing of tree with written script: One Sycamore stands alone.
<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.............................................. $ 41,570
NASD filing fee................................................... 15,450
Nasdaq National Market listing fee................................ 90,000
Printing and engraving expenses................................... 150,000
Legal fees and expenses........................................... 300,000
Accounting fees and expenses...................................... 300,000
Blue Sky fees and expenses (including legal fees)................. 10,000
Transfer agent and registrar fees and expenses.................... 12,000
Miscellaneous..................................................... 80,980
---------
Total......................................................... 1,000,000
=========
</TABLE>
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 15,346,812 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 1,852,500 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 July 31, 1999, the Registrant granted
stock options to purchase 7,760,100 shares of common stock at
exercise prices ranging from $.02 to $3.00 per share to employees,
consultants and directors pursuant to its 1998 Stock Incentive
Plan, as amended.
2. From inception through July 31, 1999, the Registrant issued and
sold an aggregate of 6,073,800 shares of its common stock to
employees, consultants and directors for aggregate consideration
of $2,939,031 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
10.9 Lease Agreement between WA/TIB Real Estate Limited Partnership and the
Company effective September 20, 1999
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)
24.2 Power of Attorney for John W. Gerdelman
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
+ 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 Amendment No. 2 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in
Chelmsford, Massachusetts, on this 24th day of September, 1999.
SYCAMORE NETWORKS, INC.
By: /s/ Daniel E. Smith
----------------------------------
Daniel E. Smith
President and Chief Executive
Officer
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed by the
following persons in the capacities set forth below on September 24, 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/ Frances M. Jewels Chief Financial Officer, Vice President,
Finance and Administration, Secretary and
- ----------------------------------- Treasurer
Frances M. Jewels
/s/ Timothy Barrows Director
- -----------------------------------
Timothy Barrows
/s/ Paul J. Ferri Director
- -----------------------------------
Paul J. Ferri
/s/ John W. Gerdelman Director
- -----------------------------------
John W. Gerdelman
</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
10.9 Lease Agreement between WA/TIB Real Estate Limited Partnership and the
Company effective September 20, 1999
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)
24.2 Power of Attorney for John W. Gerdelman
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
+ 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 5.1
September 24, 1999
Sycamore Networks, Inc.
10 Elizabeth Drive
Chelmsford, MA 01824
Re: Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration
Statement on Form S-1 (File No. 333-84635) (the "Registration Statement") filed
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"), for the registration
of an aggregate of 7,475,000 shares of Common Stock, $0.001 par value per share
(the "Shares"), of Sycamore Networks, Inc., a Delaware corporation (the
"Company").
The Shares are to be sold by the Company pursuant to an underwriting
agreement (the "Underwriting Agreement") to be entered into by and among the
Company and Morgan Stanley & Co. Incorporated, Lehman Brothers Inc., J.P. Morgan
Securities Inc. and Dain Rauscher Wessels, as representatives of the several
underwriters named in the Underwriting Agreement, the form of which has been
filed as Exhibit 1.1 to the Registration Statement.
We are acting as counsel for the Company in connection with the sale by the
Company of the Shares. We have examined signed copies of the Registration
Statement as filed with the Commission. We have also examined and relied upon
the Underwriting Agreement, minutes of meetings of the stockholders and the
Board of Directors of the Company as provided to us by the Company, stock record
books of the Company as provided to us by the Company, the Certificate of
Incorporation and By-Laws of the Company, each as restated and/or amended to
date, and such other documents as we have deemed necessary for purposes of
rendering the opinions hereinafter set forth.
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as copies, the authenticity of the originals of such latter documents and the
legal competence of all signatories to such documents.
We assume that the appropriate action will be taken, prior to the offer and
sale of the Shares in accordance with the Underwriting Agreement, to register
and qualify the Shares for sale under all applicable state securities or "blue
sky" laws.
We express no opinion herein as to the laws of any state or jurisdiction
other than the state laws of the Commonwealth of Massachusetts, the Delaware
General Corporation Law statute and the federal laws of the United States of
America. To the extent that any other laws govern the matters as to which we
are opining herein, we have assumed that such laws are identical to the state
laws of the Commonwealth of Massachusetts, and we are expressing no opinion
herein as to whether such assumption is reasonable or correct.
<PAGE>
Sycamore Networks, Inc.
September 24, 1999
Page 2
Based upon and subject to the foregoing, we are of the opinion that the
Shares have been duly authorized for issuance and, when such Shares are issued
and paid for in accordance with the terms and conditions of the Underwriting
Agreement, such Shares will be validly issued, fully paid and nonassessable.
It is understood that this opinion is to be used only in connection with
the offer and sale of the Shares while the Registration Statement is in effect.
Please note that we are opining only as to the matters expressly set forth
herein, and no opinion should be inferred as to any other matters. This opinion
is based upon currently existing statutes, rules, regulations and judicial
decisions, and we disclaim any obligation to advise you of any change in any of
these sources of law or subsequent legal or factual developments which might
affect any matters or opinions set forth herein.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act and to the use of our
name therein and in the related Prospectus under the caption "Legal Matters."
In giving such consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Commission.
Very truly yours,
/s/ Hale and Dorr LLP
HALE AND DORR LLP
<PAGE>
EXHIBIT 10.3
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
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 Affiliates Communications, Inc., and
to its parent Company and any parents of its parent Company as well as any
of the parents majority owned subsidiaries (hereinafter Affiliates), and
Williams and its Affiliates 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' Affiliate 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 up to the delivery point at Williams' premises shall be
arranged by Sycamore 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 at Williams' premises. 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 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.
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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 or pursuant
to Section 8.6. 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 Products 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 Products shall not lose functionality or degrade in performance as a
consequence of such Products operating in a date later than December 31,
1999. Sycamore shall also consult with Williams to (i) ensure that such
Products 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 Products will be interoperable with
other software used by Williams which will interact directly with the
Sycamore Products 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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<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks donate omissions.
Williams, node lock, timeout 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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<PAGE>
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 DEATH) 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 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.
17.6 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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17.7 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.
17.8 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.
17.9 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.
17.10 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. Sycamore agrees
that under its insurance policies Williams will be named as an
additional insured.
17.11 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.
17.12 Time and Material Charges. If Sycamore invoices Williams time and
material charges for services provided, Sycamore agrees to provide
documentation to substantiate such charges.
17.13 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.
17.14 Marketing. Sycamore and Williams agree to engage in joint marketing and
advertising activities as mutually agreed to by the parties. The amounts
spent on the joint marketing activities will be based on the amount of
purchases made by Williams hereunder at a contribution percentage to be
mutually determined by the parties within the first twelve months of this
Agreement.
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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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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 ten million
dollars ($10,000,000) 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. Williams
commitment is an estimate only and Williams shall have no liability or
penalty for failure to purchase this amount.
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.
f) In the event of a release from escrow of the Materials deposited, Williams
agrees that such material shall be maintained as Sycamore's Confidential
and Trade Secret Information and shall only be used for the purpose of
maintaining Williams' installed base of Sycamore Products by Williams or,
if Williams so elects, a third party agreed to in writing by Sycamore,
provided said third party is bound by the same confidentiality and use
restrictions as Williams. Sycamore shall not unreasonably withhold or delay
such agreement. If Sycamore is no longer operating its business, such
consent will not be required.
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----------------------
<PAGE>
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 [**].
18
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----------------------
<PAGE>
EXHIBIT C
to
SYCAMORE PURCHASE AND LICENSE AGREEMENT
INSURANCE TERMS
[NOTE: Sycamore's insurance binder to be attached.]
19
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SYCAMORE NETWORKS, INC.
----------------------
<PAGE>
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 Networks 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).
20
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<PAGE>
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 Licensees 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
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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
26
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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
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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
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<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
4. Return-to-Factory Repair Service
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
CONFIDENTIAL AND PROPRIETARY INFORMATION OF
-------------------------------------------
SYCAMORE NETWORK, INC
---------------------
<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
CONFIDENTIAL AND PROPRIETARY INFORMATION OF
-------------------------------------------
SYCAMORE NETWORK, INC
---------------------
<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
-------------------------------------------
SYCAMORE NETWORK, INC
---------------------
<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
-------------------------------------------
SYCAMORE NETWORK, INC
---------------------
<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>
EXHIBIT 10.9
LEASE AGREEMENT BETWEEN
W9/TIB REAL ESTATE LIMITED PARTNERSHIP,
AS LANDLORD, AND
SYCAMORE NETWORKS, INC., AS TENANT
DATED AUGUST ___, 1999
<PAGE>
BASIC LEASE INFORMATION
-----------------------
Lease Date: August ___, 1999
Tenant: SYCAMORE NETWORKS, INC., a Delaware corporation
Landlord: W9/TIB REAL ESTATE LIMITED PARTNERSHIP, a Delaware limited
partnership
Premises: The entire building containing approximately 82,848 rentable
square feet commonly known as 4 Omni Way, Chelmsford,
Massachusetts (the "BUILDING"), and whose street address is 4
Omni Way, Chelmsford, Massachusetts and the Land (hereinafter
defined) and all other improvements located thereon, including,
without limitation, the parking and loading areas on the Land,
the walkways and driveways providing access to the Building and
such parking and loading areas, and the wires, cables, pipes,
mains, conduits, trenches and other fixtures, facilities and
equipment necessary or convenient to provide electricity,
telephone, cable, gas, water, sewer and other utility and
telecommunication services to the Building. The Premises are
outlined on the plan attached to the Lease as Exhibit A. The land
on which the Building is located (the "LAND") is described on
Exhibit B.
Term: Approximately sixty (60) months, commencing on the date (the
"COMMENCEMENT DATE") which is the earlier of (i) the date which
is sixty (60) days after the date (the "DELIVERY DATE") upon
which the Landlord delivers the Premises to Tenant in broom-clean
condition and free of tenants and occupants and their
possessions, or (ii) the date upon which Tenant occupies the
Premises for the Permitted Use (and not for the construction and
installation of the Work, as hereinafter defined) and ending at
5:00 p.m. on the last day of the sixtieth (60) full calendar
month following the Commencement Date, subject to adjustment and
earlier termination as provided in the Lease .
Basic Rent: Basic Rent shall be the following amounts for the following
periods of time:
<TABLE>
<CAPTION>
LEASE MONTH MONTHLY BASIC RENT
--------------------- ----------------------------
<S> <C> <C>
1-24 $79,396.00
25-60 $86,300.00
</TABLE>
i
<PAGE>
As used herein, the term "LEASE MONTH" shall mean each
calendar month during the Term (and if the Commencement Date
does not occur on the first day of a calendar month, the
period from the Commencement Date to the first day of the
next calendar month shall be included in the first Lease
Month for purposes of determining the duration of the Term
and the monthly Basic Rent rate applicable for such partial
month).
Security Deposit: Subject to the provisions of Section 6 of the Lease,
$500,000.00.
Rent: Basic Rent, Taxes, Additional Rent, and all other sums that
Tenant may owe to Landlord or otherwise be required to pay
under the Lease.
Permitted Use: Subject to and to the extent permitted by all applicable
Laws, general office and research and development use.
Initial Liability
Insurance Amount: $3,000,000.00
Maximum Construction
Allowance: $ 828,480.00.
<TABLE>
<CAPTION>
Tenant's Address: Prior to Commencement Date: Following the Commencement Date:
--------------------------- --------------------------------
<S> <C> <C>
10 Elizabeth Drive 4 Omni Way
Chelmsford, MA 01824-4111 Chelmsford, MA 01824-4111
Attn: Mr. Peter Hamel Attn: Corporate Counsel
</TABLE>
At all times with a copy to:
---------------------------
Testa, Hurwitz & Thibeault, LLP
125 High Street
Boston, MA 02110
Attn: Real Estate Department
Landlord's Address: For all Notices: With a copy to:
--------------- --------------
Archon Group, L.P. Choate, Hall & Stewart
1275 K Street NW, Suite 900 Exchange Place
Washington, DC 20005 53 State Street
Boston, MA 02109-2891 Attn: Anne Rickard
Jackowitz, P.C.
ii
<PAGE>
The foregoing Basic Lease Information is incorporated into and made a part of
the Lease identified above. If any conflict exists between any Basic Lease
Information and the Lease, then the Lease shall control.
LANDLORD:
W9/TIB REAL ESTATE LIMITED
PARTNERSHIP, a Delaware limited partnership
By: W9/TIB Gen-Par, Inc., a Delaware
corporation, its general partner
By: __________________________
Name:___________________
Title:__________________
TENANT:
SYCAMORE NETWORKS, INC.,
a Delaware corporation
By: __________________________
Name:________________________
Title: President/Vice President
By: ___________________________
Name:__________________________
Title: Treasurer/Assistant Treasurer
iii
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
1. DEFINITIONS AND BASIC PROVISIONS......................... 1
--------------------------------
2. LEASE GRANT.............................................. 1
-----------
4. RENT..................................................... 2
----
(a) PAYMENT........................................... 2
-------
(b) OPERATING COSTS; TAXES............................ 2
----------------------
(c) BILLING FOR ELECTRICITY........................... 5
-----------------------
5. DELINQUENT PAYMENT; HANDLING CHARGES..................... 6
------------------------------------
6. SECURITY DEPOSIT......................................... 6
---------------
7. LANDLORD'S OBLIGATIONS................................... 9
----------------------
(a) SERVICES.......................................... 9
--------
(b) LANDLORD'S MAINTENANCE OBLIGATIONS................ 9
----------------------------------
(c) EXCESS UTILITY USE................................ 9
------------------
(d) RESTORATION OF SERVICES; ABATEMENT................ 10
----------------------------------
8. IMPROVEMENTS; ALTERATIONS; REPAIRS; MAINTENANCE.......... 10
-----------------------------------------------
(a) IMPROVEMENTS; ALTERATIONS........................ 10
-------------------------
(b) REPAIRS; MAINTENANCE............................. 11
--------------------
(c) PERFORMANCE OF WORK.............................. 11
-------------------
(d) MECHANIC'S LIENS................................. 12
----------------
(e) UTILITIES........................................ 12
---------
(f) FLOOR LOAD; HEAVY MACHINERY...................... 12
----------------------------
9. USE...................................................... 13
---
10. ASSIGNMENT AND SUBLETTING................................ 13
-------------------------
(a) TRANSFERS........................................ 13
---------
(b) CONSENT STANDARDS................................ 13
-----------------
(c) REQUEST FOR CONSENT.............................. 13
-------------------
(d) CONDITIONS TO CONSENT............................ 14
---------------------
(e) CANCELLATION..................................... 14
------------
(f) ADDITIONAL COMPENSATION.......................... 14
-----------------------
(g) PERMITTED TRANSFERS.............................. 14
------------------
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
11. INSURANCE; WAIVERS; SUBROGATION; INDEMNITY............... 15
------------------------------------------
(a) TENANT'S INSURANCE................................. 15
------------------
(b) LANDLORD'S INSURANCE............................... 16
--------------------
(c) WAIVER OF NEGLIGENCE; NO SUBROGATION............... 16
------------------------------------
(d) TENANT'S INDEMNITY................................. 16
-----------------
12. SUBORDINATION; ATTORNMENT; NOTICE TO LANDLORD'S MORTGAGEE 17
---------------------------------------------------------
(a) SUBORDINATION...................................... 17
-------------
(b) ATTORNMENT......................................... 17
---------
(c) NOTICE TO LANDLORD'S MORTGAGEE..................... 17
------------------------------
(d) LANDLORD'S MORTGAGEE'S PROTECTION PROVISIONS....... 17
--------------------------------------------
13. RULES AND REGULATIONS.................................... 18
---------------------
14. CONDEMNATION............................................. 19
------------
(a) TOTAL TAKING........................................ 19
------------
(b) PARTIAL TAKING - TENANT'S RIGHTS..................... 19
-------------------------------
(c) PARTIAL TAKING - LANDLORD'S RIGHTS................... 19
---------------------------------
(d) AWARD............................................... 19
-----
15. FIRE OR OTHER CASUALTY................................... 19
----------------------
(a) REPAIR ESTIMATE.................................... 19
---------------
(b) LANDLORD'S AND TENANT'S RIGHTS..................... 19
------------------------------
(c) LANDLORD'S RIGHTS.................................. 20
-----------------
(d) REPAIR OBLIGATION.................................. 20
-----------------
16. PERSONAL PROPERTY TAXES.................................. 20
-----------------------
17. EVENTS OF DEFAULT........................................ 21
-----------------
18. REMEDIES................................................. 21
--------
19. PAYMENT BY TENANT; NON-WAIVER............................ 22
-----------------------------
(a) PAYMENT BY TENANT................................. 22
-----------------
(b) NO WAIVER......................................... 23
---------
20. LANDLORD'S LIEN.......................................... 23
---------------
21. SURRENDER OF PREMISES.................................... 23
---------------------
22. HOLDING OVER............................................. 23
------------
23. CERTAIN RIGHTS RESERVED BY LANDLORD...................... 24
-----------------------------------
</TABLE>
v
<PAGE>
<TABLE>
<S> <C>
24. INTENTIONALLY DELETED.................................... 24
---------------------
25. MISCELLANEOUS............................................ 24
-------------
(a) LANDLORD TRANSFER.................................... 24
-----------------
(b) LANDLORD'S LIABILITY................................. 24
--------------------
(c) FORCE MAJEURE........................................ 25
-------------
(d) BROKERAGE............................................ 25
---------
(e) ESTOPPEL CERTIFICATES................................ 25
--------------------
(f) NOTICES.............................................. 25
-------
(g) SEPARABILITY......................................... 25
------------
(h) AMENDMENTS; AND BINDING EFFECT....................... 25
------------------------------
(i) QUIET ENJOYMENT...................................... 26
---------------
(j) NO MERGER............................................ 26
---------
(k) NO OFFER............................................. 26
--------
(l) ENTIRE AGREEMENT..................................... 26
----------------
(m) WAIVER OF JURY TRIAL................................. 26
--------------------
(n) GOVERNING LAW........................................ 26
-------------
(o) JOINT AND SEVERAL LIABILITY.......................... 26
---------------------------
(p) FINANCIAL REPORTS.................................... 26
-----------------
(q) LANDLORD'S FEES...................................... 27
---------------
(r) [INTENTIONALLY OMITTED].............................. 27
(s) CONFIDENTIALITY...................................... 27
---------------
(t) HAZARDOUS MATERIALS.................................. 27
-------------------
(u) LIST OF EXHIBITS..................................... 28
----------------
(v) TIME OF ESSENCE...................................... 28
---------------
(w) SIGNAGE.............................................. 28
-------
(x) ACCESS 28
------
(y) FAILURE OF TENANT TO CONTINUOUSLY OCCUPY THE PREMISES 28
-----------------------------------------------------
26. OTHER PROVISIONS......................................... 29
----------------
</TABLE>
vi
<PAGE>
LIST OF DEFINED TERMS
<TABLE>
<S> <C>
Additional Rent............................................................................ 2
Affiliate.................................................................................. 1
Amendment.................................................................................. E-1
AS-IS...................................................................................... D-1
Base Building Electrical Capacity.......................................................... 9
Basic Lease Information.................................................................... 1
Basic Rent................................................................................. i
Building................................................................................... i
Building's Structure....................................................................... 9
Casualty................................................................................... 19
Commencement Date.......................................................................... i
Common Property Expenses................................................................... 5
Common Property Lot........................................................................ 5
Common Property Plan....................................................................... 5
Construction Allowance..................................................................... D-2
Damage Notice.............................................................................. 19
Delivery Date.............................................................................. i
Estimated Delivery Date.................................................................... 1
Event of Default........................................................................... 21
Exterior Areas............................................................................. 9
Fair Market Rental Rate.................................................................... G-1
GAAP....................................................................................... 15
Hazardous Materials........................................................................ 27
HVAC....................................................................................... 10
including.................................................................................. 1
Land....................................................................................... i
Landlord................................................................................... 1, E-1
Landlord's Mortgagee....................................................................... 17
Law........................................................................................ 1
Laws....................................................................................... 1
Lease...................................................................................... 1-F-1
Lease Month................................................................................ ii
Letter of Credit........................................................................... 7
Loss....................................................................................... 16
Mortgage................................................................................... 17
Non-Disturbance Agreement.................................................................. 18
Office Park................................................................................ 6
Omni Way................................................................................... 5
Operating Costs............................................................................ 3
Operating Costs and Tax Statement.......................................................... 4
</TABLE>
vii
<PAGE>
<TABLE>
<S> <C>
Operating Year............................................................................. 6
Permitted Transfer......................................................................... 14
Permitted Transferee....................................................................... 14
Permitted Use.............................................................................. ii
Premises................................................................................... i
Punchlist Items............................................................................ E-1
Reduction Date............................................................................. 8
Reduction Dates............................................................................ 8
Rent....................................................................................... ii
Security Deposit........................................................................... ii
Taking..................................................................................... 19
Tangible Net Worth......................................................................... 15
Taxes...................................................................................... 4
Tenant..................................................................................... 1, 21, E-1
Tenant Party............................................................................... 1
Tenant's Common Property Percentage........................................................ 6
Term....................................................................................... i
Total Construction Costs................................................................... D-2
Transfer................................................................................... 13
Work....................................................................................... D-1
Working Drawings........................................................................... D-1
</TABLE>
viii
<PAGE>
LEASE
-----
THIS LEASE AGREEMENT (this "LEASE") is entered into as of August __, 1999,
between W9/TIB REAL ESTATE LIMITED PARTNERSHIP, a Delaware limited partnership
("LANDLORD"), and SYCAMORE NETWORKS, INC., a Delaware corporation ("TENANT").
1. DEFINITIONS AND BASIC PROVISIONS. The definitions and basic
--------------------------------
provisions set forth in the Basic Lease Information (the "BASIC LEASE
INFORMATION") executed by Landlord and Tenant contemporaneously herewith are
incorporated herein by reference for all purposes. Additionally, the following
terms shall have the following meanings when used in this Lease: "LAWS" means
all federal, state, and local laws, rules and regulations, all court orders,
governmental directives, and governmental orders, and all restrictive covenants
affecting the Premises as of the date of this Lease, and "LAW" shall mean any of
the foregoing; "AFFILIATE" means any person or entity which, directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with the party in question; "TENANT PARTY" means any of
the following persons: Tenant; any assignees claiming by, through, or under
Tenant; any subtenants claiming by, through, or under Tenant; and any of their
respective agents, contractors, employees, and invitees; and "INCLUDING" means
including, without limitation.
2. LEASE GRANT. Subject to the terms of this Lease, Landlord leases to
-----------
Tenant, and Tenant leases from Landlord, the Premises for the Term.
3. TERM. Landlord shall deliver possession of the Premises to Tenant on
----
or before August 24, 1999, and in broom-clean condition and free of all tenants
and occupants and their possessions (the "ESTIMATED DELIVERY DATE"). If the
Premises are not delivered to Tenant on the Estimated Delivery Date as
aforesaid, then (a) Landlord shall not be in default hereunder or be liable for
damages therefor, and (b) Tenant shall accept possession of the Premises when
Landlord tenders possession thereof to Tenant. Upon the Delivery Date, Tenant
shall be deemed to have accepted the Premises in the condition specified in
Section 1 of Exhibit D attached hereto, subject to Landlord's obligation to put
---------
all Building HVAC and mechanical systems serving the Premises in operable
condition on or before the Commencement Date, and in broom-clean condition.
Following the Commencement Date, Tenant and Landlord each shall execute and
deliver to the other, within ten days after receiving a written request
therefor, an amendment substantially in the form of Exhibit E hereto confirming
---------
the Commencement Date and the expiration date of the initial Term, that Tenant
has accepted the Premises except as otherwise specified in said amendment, and
that Landlord has performed all of its obligations with respect to the Premises
except as otherwise specified in said amendment. Subject to all of the
provisions of this Lease excepting only those requiring the payment of Basic
Rent, Additional Rent and Taxes, Tenant shall have the right to use and occupy
the Premises before the Commencement Date for the purpose of constructing the
Work and installing its trade fixtures, equipment and personal property.
Notwithstanding the foregoing, if the Premises have not been delivered to Tenant
in accordance with the terms and conditions of this Lease on or before September
16, 1999, then Tenant shall have the right to
1
<PAGE>
terminate this Lease upon ten (10) days prior written notice to Landlord;
provided, however, if Landlord delivers possession of the Premises to Tenant in
the condition required under this Section 3 within said ten (10) day period,
then Tenant's termination notice shall be null and void and the provisions of
this Lease shall remain in full force and effect. If this Lease is terminated in
accordance with the provisions of the preceding sentence, Landlord shall
immediately return any deposits or other funds paid to Landlord by Tenant.
4. RENT.
----
(a) PAYMENT. Commencing as of the Commencement Date, Tenant shall
-------
timely pay to Landlord Basic Rent and all additional sums to be paid by Tenant
to Landlord under this Lease, without notice, deduction or set off, except as
otherwise expressly provided herein, at Landlord's address provided for in this
Lease or as otherwise specified by Landlord in a written notice to Tenant, and
shall be accompanied by all applicable state and local sales or use taxes.
Basic Rent, adjusted as herein provided, shall be payable monthly in advance.
The first monthly installment of Basic Rent shall be payable contemporaneously
with the execution of this Lease; thereafter, Basic Rent shall be payable on the
first day of each month beginning on the first day of the second full calendar
month of the Term. The monthly Basic Rent for any partial month at the
beginning of the Term shall equal the product of 1/365 of the annual Basic Rent
in effect during the partial month and the number of days in the partial month
from and after the Commencement Date, and shall be due on the Commencement Date.
(b) OPERATING COSTS; TAXES
----------------------
(1) Tenant shall pay all of the Operating Costs (defined below)
("ADDITIONAL RENT") attributable to any period included in the Term according to
the terms of this Section 4.(b). Landlord may make a good faith estimate of the
Additional Rent to be due by Tenant for any calendar year or part thereof during
the Term, and Tenant shall pay to Landlord, on the Commencement Date and on the
first day of each calendar month thereafter, an amount equal to the estimated
Additional Rent for such calendar year or part thereof divided by the number of
months in such year or partial year. From time to time, Landlord may reasonably
estimate and re-estimate the Additional Rent to be due by Tenant and deliver a
copy of the estimate or re-estimate to Tenant; provided, however, the estimate
or the difference between the re-estimate and the prior estimate in the case of
a re-estimate, as applicable, attributable to the period covered by such
estimate or re-estimate before the date when Tenant receives such estimate or
re-estimate shall be payable within thirty (30) days after Landlord delivers the
estimate or re-estimate, as applicable. Thereafter, the monthly installments of
Additional Rent payable by Tenant shall be appropriately adjusted in accordance
with the estimations so that, by the end of the calendar year in question,
Tenant shall have paid all of the Additional Rent for each such calendar year as
reasonably estimated by Landlord. Any amounts paid based on such an estimate
shall be subject to adjustment as herein provided when actual Operating Costs
are available for each calendar year.
2
<PAGE>
(2) The term "OPERATING COSTS" shall mean all expenses and
disbursements (subject to the limitations set forth below) that Landlord incurs
in connection with the ownership, operation, and maintenance of the Premises,
determined in accordance with generally accepted accounting principles
consistently applied, including, but not limited to, the following costs: (A)
wages and salaries (including management fees, which management fees shall not
exceed fair market management fees in comparable single tenanted buildings in
the Greater Boston area) of all employees at the level of building manager and
below engaged in the operation, maintenance, and security of the Premises,
including taxes, insurance and benefits relating thereto; (B) all supplies and
materials used in the operation, maintenance, repair, replacement, and security
of the Premises; (C) costs for improvements made to the Premises which, although
capital in nature, reduce the normal operating costs (including all utility
costs) of the Premises, as well as capital improvements made in order to comply
with any law hereafter promulgated by any governmental authority, as amortized
over the useful economic life of such improvements as determined by Landlord in
its reasonable discretion (with only the annual amortized portion of such costs
being included in Operating Costs in any calendar year); (D) cost of all
utilities, except the cost of utilities paid directly by Tenant or reimbursable
to Landlord by Tenant other than pursuant to a provision similar to this
provision; (E) insurance expenses; (F) repairs, replacements, and general
maintenance of the Premises; (G) service or maintenance contracts with
independent contractors for the operation, maintenance, repair, replacement, or
security of the Premises (including, without limitation, alarm service, window
cleaning, and elevator maintenance); and (H) Tenant's Common Property Percentage
of Common Property Expenses.
Notwithstanding any other provision of this Lease, Operating Costs
shall not include costs for (i) capital improvements made to the Premises, other
than capital improvements described in Section 4.(b)(2)(C) and except for items
which are generally considered maintenance and repair items, such as painting of
common areas, replacement of carpet in elevator lobbies, and the like; (ii)
repair, replacements and general maintenance and other expenses paid by proceeds
of insurance or by Tenant or other third parties; (iii) interest, amortization
of principal or other payments on loans to Landlord and rent and other sums due
under a ground lease or master lease relating to the Premises; (iv)
depreciation; (v) leasing commissions; (vi) legal expenses for services, other
than those that benefit Tenant (e.g., tax disputes); (vii) Taxes (defined
---
below); (viii) federal income taxes imposed on or measured by the income of
Landlord from the operation of the Premises; (ix) the cost of repairs necessary
to cure any latent defect in the initial construction of the Building; (x)
Landlord's general overhead except as it relates specifically to the management
or operations of the Premises; (xi) any cost necessary to cure any violation of
any law, ordinance or regulation applicable to the Building existing as of the
date of this Lease or to investigate, test, contain and/or remediate the
presence of Hazardous Materials or other environmental conditions existing as of
the date of this Lease (in each case, to the extent not caused or exacerbated by
any Tenant Party); (xii) any cost or expense to the extent to which Landlord is
paid or reimbursed (other than as a payment for Operating Costs), including, but
not necessarily limited to, the cost of any item for which Landlord is paid or
reimbursed by insurance warranties, service contracts, condemnation proceeds or
otherwise; (xiii) costs of repairs and replacements arising out of a fire or
other casualty or an exercise of eminent domain affecting the
3
<PAGE>
Building or the Land, except for the deductibles under policies of insurance
carried by Landlord; (xiv) compensation for executives or officers or other
employees of Landlord above the level of the building manager; (xv) expenses
arising from the gross negligence or willful misconduct of Landlord or its
agents, employees or contractors; (xvi) rent loss insurance; and (xvii) costs or
expenses of operating, administrating, cleaning, repairing, maintaining,
replacing, managing and lighting any land, buildings, facilities, structures and
improvements in the Office Park that do not serve the Premises exclusively or in
common with other lots and buildings in the Office Park.
(3) Tenant shall also pay all of the Taxes for each year and partial
year falling within the Term, in the same manner as provided in Sections
4.(b)(1) and 4.(b)(5) for Additional Rent with regard to Operating Costs.
"TAXES" shall mean taxes, assessments, and governmental charges whether federal,
state, county or municipal, and whether they be by taxing districts or
authorities presently taxing or by others, subsequently created or otherwise,
and any other taxes and assessments attributable to the Premises (or its
operation), excluding, however, penalties and interest thereon and federal and
state taxes on income (but if the present method of taxation changes so that in
lieu of the whole or any part of any Taxes, there is levied on Landlord a
capital tax directly on the rents received therefrom or a franchise tax,
assessment, or charge based, in whole or in part, upon such rents for the
Premises, then all such taxes, assessments, or charges, or the part thereof so
based, shall be deemed to be included within the term "TAXES" for purposes
hereof). Taxes shall include the costs of consultants retained in an effort to
lower taxes and all costs incurred in disputing any taxes or in seeking to lower
the tax valuation of the Premises. For property tax purposes, Tenant waives all
rights to protest or appeal the appraised value of the Premises, as well as the
Building, and all rights to receive notices of reappraisement. Landlord
represents to Tenant that the Premises comprise a tax parcel separately assessed
from other property of Landlord or any third party.
(4) INTENTIONALLY DELETED.
---------------------
(5) By April 1 of each calendar year, or as soon thereafter as
practicable, Landlord shall furnish to Tenant a statement of Operating Costs for
the previous year, and of the Taxes for the previous year (the "OPERATING COSTS
AND TAX STATEMENT"). If the Operating Costs and Tax Statement reveals that
Tenant paid more for Operating Costs than the actual amount for the year for
which such statement was prepared, or more than its actual share of Taxes for
such year, then Landlord shall promptly credit or reimburse Tenant for such
excess; likewise, if Tenant paid less than Tenant's actual Additional Rent or
Taxes due, then Tenant shall promptly pay Landlord such deficiency. If Tenant
is not in monetary default of its obligations under this Lease, within a period
of sixty (60) days following receipt of the Operating Costs and Tax Statement,
Tenant or its representatives (which representatives shall exclude anyone hired
on a contingent fee basis) shall have the right, upon reasonable prior notice
and at mutually convenient times, to examine Landlord's books and records with
respect to the items in such Statement during normal business hours at
Landlord's offices where such books and records are maintained (which books and
records shall be maintained in accordance with GAAP). Tenant may give Landlord
notice of any written objection to any items of expense. If it shall be
determined
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by Landlord and Tenant that (i) Landlord overcharged Tenant, Landlord shall
promptly refund (but no later than thirty (30) days after such determination is
made) to Tenant the amount of any such overcharge, or (ii) Landlord undercharged
Tenant, then Tenant shall promptly pay (but no later than thirty (30) days after
such determination is made) the amount of any such undercharge to Landlord. Any
information obtained by Tenant pursuant to the provisions of this Section
4.(b)(5) shall be treated as confidential under the conditions set forth in
Section 25.(s) of this Lease.
(c) BILLING FOR ELECTRICITY. Tenant shall pay (as hereinafter
-----------------------
described) for the use of all electrical service to the Premises. Tenant shall
be billed directly by such utility company and Tenant agrees to pay each bill
promptly in accordance with its terms, and upon default in making any such
payment which continues for more than ten (10) days after written notice to
Tenant, Landlord may pay such charges and collect the same from Tenant. In the
event for any reason Tenant cannot be billed directly, Landlord shall forward
each bill received with respect to the Building to Tenant, which Tenant shall
pay within thirty (30) days of receiving each such bill unless the terms of the
each such bill specify otherwise.
(d) COMMON PROPERTY EXPENSES.
------------------------
(1) Definitions. For the purposes of this Section 4.(d), the
-----------
following terms shall have the following respective meanings:
(A) The term "COMMON PROPERTY" shall mean the retention ponds,
drainage facilities, electric substations, utility lines, pumping
stations and other facilities and structures which serve the
Premises in common with other lots and buildings in the Office
Park (as hereinafter defined), excluding any such facilities and
structures that serve or benefit any lot or building in the
Office Park exclusively, together with "Omni Way" (as said term
is hereinafter defined) and all curbing, gutters, paving and
sidewalks located within the right of way of Omni Way, as well as
the parcel of land together with the gazebo and all other
improvements now or hereafter located thereon (said land, gazebo
and improvements, as the same may be altered from time to time,
are hereinafter collectively referred to as the "COMMON PROPERTY
LOT") shown as Lot 3 on a plan (the "COMMON PROPERTY PLAN")
entitled "Plan of Land of Billerica Road Site, Chelmsford, MA",
recorded in the Middlesex North District Registry of Deeds in
Plan Book 143, as Plan 143, all as located in or about or
adjacent to Omni Way. As used herein, the term "OMNI WAY" shall
mean the road shown on the Common Property Plan as Patricia Drive
and now being known as Omni Way, as said Omni Way may be altered
or changed from time to time.
(B) The term "COMMON PROPERTY EXPENSES" shall mean the aggregate
costs or expenses reasonably incurred by Landlord with respect to
the operation,
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administration, cleaning, repair, maintenance, replacement,
management and lighting of the Common Property, together with all
costs of any insurance carried by Landlord with respect to the
Common Property and together with all Taxes on, or related to, or
which may become a lien on, any Common Property.
(C) The term "OFFICE PARK" shall mean the land and buildings known
and numbered as 2 Omni Way, 4 Omni Way, 5 Omni Way and 6 Omni Way
in Chelmsford, Massachusetts, shown as Lots 2A, 2B, 2E and 2D on
the Common Property Plan.
(D) The term "OPERATING YEAR" shall mean each calendar year in which
--------------
any part of the Term of this Lease shall fall.
(E) The term "TENANT'S COMMON PROPERTY PERCENTAGE" shall mean 23.81%.
-----------------------------------
(2) Tenant's Payments.
------------------
Operating Costs shall include an amount equal to (i) Common Property
Expenses for each Operating Year multiplied by (ii) the Tenant's Common Property
Percentage, such amount to be apportioned for any partial Operating Year in
which the Commencement Date falls or the Term of this Lease ends.
5. DELINQUENT PAYMENT; HANDLING CHARGES. All past due payments required
------------------------------------
of Tenant hereunder shall bear interest from the date due until paid at the
lesser of twelve percent per annum or the maximum lawful rate of interest;
additionally, Landlord may charge Tenant a fee equal to 5% of the delinquent
payment to reimburse Landlord for its cost and inconvenience incurred as a
consequence of Tenant's delinquency. In no event, however, shall the charges
permitted under this Section 5 or elsewhere in this Lease, to the extent they
are considered to be interest under applicable Law, exceed the maximum lawful
rate of interest.
6. SECURITY DEPOSIT. Contemporaneously with the execution of this
----------------
Lease, Tenant shall pay to Landlord the Security Deposit, which shall be held by
Landlord to secure Tenant's performance of its obligations under this Lease.
The Security Deposit is not an advance payment of Rent or a measure or limit of
Landlord's damages upon an Event of Default (defined in Section 17). Landlord
may, from time to time following an Event of Default and without prejudice to
any other remedy, use all or a part of the Security Deposit to perform any
obligation Tenant fails to perform hereunder with respect to such Event of
Default. Following any such application of the Security Deposit, Tenant shall
pay to Landlord on demand the amount so applied in order to restore the Security
Deposit to its original amount. After applying all sums necessary to cure any
Event of Default, Landlord shall, within 30 days after the Term ends, return to
Tenant the portion of the Security Deposit which was not properly applied to
satisfy Tenant's obligations. The Security Deposit may be commingled with other
funds, and no interest shall be paid thereon. If
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Landlord transfers its interest in the Premises and the transferee assumes
Landlord's obligations under this Lease, then Landlord shall assign the Security
Deposit to the transferee and the transferor Landlord thereafter shall have no
further liability for the return of the Security Deposit, but the transferee
Landlord, by accepting any such transfer, shall be deemed to have assumed all
obligations of Landlord with respect to the Security Deposit.
In lieu of a cash Security Deposit, simultaneously with the execution and
delivery of this Lease, or from time to time during the Term, Tenant may deliver
to Landlord an irrevocable and unconditional standby letter of credit made
payable to Landlord, its successors and assigns, in the sum of $500,000.00 (the
"LETTER OF CREDIT"), in the form of the sample letter of credit attached hereto
as Exhibit I or in such other form as is reasonably acceptable to Landlord,
---------
which shall secure the performance by Tenant of all obligations on the part of
Tenant hereunder. The issuer of the Letter of Credit shall be a banking
institution with at least a rating of A and otherwise reasonably acceptable to
Landlord. Although Landlord shall only have the right to draw under the Letter
of Credit as set forth herein, under the terms of the Letter of Credit, the sole
condition to Landlord's draw upon the Letter of Credit shall be presentment to
the issuer thereof, prior to or on the expiration date, of a demand for payment,
together with a statement or certification that an Event of Default has occurred
under this Lease or that Landlord has received a notice of the failure to extend
or renew the Letter of Credit. The Letter of Credit shall be self-renewing from
year to year during the Term of this Lease so as to expire no earlier than
thirty (30) days following the Lease expiration date and shall contain such
other customary terms as Landlord requires in its reasonable discretion. It is
agreed: (i) that the Letter of Credit may be drawn upon to cure any Event of
Default that may exist, without prejudice to any other remedy or remedies which
Landlord may have on account thereof, and upon Landlord's demand, Tenant shall
reimburse the issuer for the amount so drawn so that the Letter of Credit will
be restored to its original amount; (ii) subject to the provisions of clause
(iv) below, that the Letter of Credit may be drawn upon if the Letter of Credit
has not been extended or renewed without amendment at least forty-five (45) days
prior to any then-current expiration date thereof; (iii) that if the rating of
the issuer of the Letter of Credit at any time drops below A, then, within sixty
(60) days of Landlord's written demand, Tenant shall replace the Letter of
Credit with another Letter of Credit in a form reasonably acceptable to Landlord
and with an issuer with a rating of at least an A and otherwise reasonably
acceptable to Landlord; upon receipt of such substitute Letter of Credit,
Landlord shall promptly return the previous Letter of Credit to Tenant; and
Landlord may draw on the existing Letter of Credit if, after Landlord requests
that Tenant replace the Letter of Credit as aforesaid, Landlord is not provided
with a substitute Letter of Credit in a form, and from an issuer, satisfactory
to Landlord as provided above at least fifteen (15) days prior to the then-
current expiration date of the Letter of Credit; (iv) if at any time, but in any
event, at least sixty (60) days prior to the expiration of the Letter of Credit,
Tenant may seek Landlord's consent to switch issuers of the Letter of Credit
provided the prospective issuer has a rating of at least an A and is otherwise
reasonably acceptable to Landlord and the new form of Letter of Credit satisfies
the requirements of Landlord hereunder and is otherwise reasonably acceptable to
Landlord; upon receipt of such substitute Letter of Credit, Landlord shall
promptly return the previous Letter of Credit to Tenant; and Landlord may draw
on the existing Letter of Credit if, after Tenant requests
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Landlord's consent to switch issuers as aforesaid, Landlord is not provided with
a substitute Letter of Credit in a form, and from an issuer, satisfactory to
Landlord in its sole and absolute discretion at least forty-five (45) days prior
to the then-current expiration date of the Letter of Credit; (v) that should the
Premises be conveyed by Landlord, the Letter of Credit or any portion thereof
shall be assigned to Landlord's grantee, and if the same be assigned as
aforesaid, Tenant hereby releases Landlord from any and all liability with
respect to the Letter of Credit and its application or return, and Tenant agrees
to look to such grantee for such application or return; provided, however, that,
by accepting any such conveyance, such grantee shall be deemed to have assumed
Landlord's obligations under this Lease (including this Section 6); and (vi)
that the Letter of Credit shall be returned to Tenant upon the later of (a)
thirty (30) days after the expiration of the Term or any renewal or extension
thereof, or (b) the date Tenant has vacated the Premises and surrendered
possession thereof to Landlord at the expiration of the Term or any extension
thereof as provided herein and has paid Landlord all sums due and owing under
this Lease.
If Tenant initially provides Landlord with a cash Security Deposit, Tenant
may replace such cash Security Deposit with a Letter of Credit in accordance
with the provisions of the preceding paragraph. Upon Landlord's receipt of a
Letter of Credit satisfying the terms and conditions of the preceding paragraph,
Landlord shall promptly return the cash Security Deposit to Tenant.
For the purposes of this Section 6, a rating of at least A (or its
equivalent) shall mean that such issuer has a rating of at least A (or its
equivalent) from two (2) of the following four (4) rating agencies: Fitch
Investors Service, Moody's Investor Service, Standard & Poor's Corporation and
Duff & Phelps.
Notwithstanding any of the foregoing provisions of this Section 6 to the
contrary, on the date that is thirty-six (36) months after the Commencement Date
and on the date that is forty-eight (48) months after the Commencement Date
during the initial Term only (individually, a "REDUCTION DATE" and collectively
the "REDUCTION DATES"), the Security Deposit (or the applicable Letter or
Credit) shall be reduced by $100,000.00, provided that on the applicable
Reduction Date (i) the Lease is in full force and effect, (ii) no Event of
Default exists, (iii) no Event of Default has occurred more than twice during
the Term, and (iv) Tenant has not assigned this Lease to anyone other than an
Affiliate of Tenant. If on any of the Reduction Dates the Security Deposit (or
the applicable Letter of Credit) shall not be reduced because one or more of the
conditions set forth in clauses (i), (ii) or (iii) above cease to exist on the
applicable Reduction Date, the Security Deposit (or applicable Letter of Credit)
shall not be reduced during any succeeding calendar year. If on any of the
Reduction Dates the Security Deposit (or applicable Letter of Credit) shall not
be reduced because only the condition set forth in clause (iv) above (as opposed
to the conditions set forth in any of clauses (i), (ii) or (iii) above) ceases
to exist on the applicable Reduction Date, the Security Deposit (or applicable
Letter of Credit) shall be so reduced on the next Reduction Date, provided the
conditions set forth in clauses (i), (ii), (iii) and (iv) above exist on that
Reduction Date, and provided further that the Security Deposit (or applicable
Letter of Credit) shall be reduced only by the amount which the Security Deposit
(or applicable Letter of Credit) would have been reduced in the preceding
Reduction Date year if all
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of the conditions set forth in clauses (i), (ii), (iii) and (iv) above existed.
Notwithstanding any other provisions of this Section 6, the Security Deposit (or
the applicable Letter of Credit) shall be reduced by $100,000.00 on each
anniversary of the Commencement Date, provided that the conditions set forth in
clauses (i), (ii), (iii) and (iv) above are satisfied and Tenant or a Permitted
Transferee has a Tangible Net Worth of at least $36,000,000.00. If the Security
Deposit (or applicable Letter of Credit) is reduced pursuant to the foregoing
provisions, Landlord shall return the amount of each such applicable reduction
if Tenant paid the Security Deposit in cash or Tenant may replace and/or amend
the Letter of Credit accordingly.
7. LANDLORD'S OBLIGATIONS
----------------------
(a) SERVICES. Landlord shall furnish to Tenant the following
services (the cost of which services shall be considered Operating Costs to the
extent provided under Section 4 of this Lease): (1) water at those points of
supply to the Building as currently; (2) HVAC having a total capacity of at
least 245 tons; (3) electricity from a 3000-amp main having a capacity of
480/277 volts, three phase; and (4) removal of snow and ice from exterior
walkways, driveways and parking and loading areas of the Premises.
(b) LANDLORD'S MAINTENANCE OBLIGATIONS. Landlord shall perform
all repairs, maintenance and replacements necessary to keep in good condition
and working order and in compliance with all applicable laws (i) the Building's
roof, foundation, slabs, columns and exterior walls of the Building (the
"BUILDING'S STRUCTURE"), (ii) the Building's HVAC and mechanical systems, that
portion of the plumbing system located on the exterior of the Building, and that
portion of the electrical system located on the exterior of the Building up to
and including the main electrical panel for the Building (including all wires,
cables, pipes, main conduits, trenches and other fixtures, facilities and
equipment on the Land outside the Building), and, in each case, only if Tenant
has not performed any repairs, maintenance, alterations and/or improvements to
any such systems, (iii) the parking and loading areas, driveways, walkways,
drainage, landscaping and other exterior areas of the Premises (collectively,
the "EXTERIOR AREAS"), and (iv) the Common Property. Landlord shall not be
responsible for (1) alterations to the Building's Structure or any other portion
of the Premises required by applicable Law because of Tenant's use of the
Premises (which alterations shall be Tenant's responsibility), or (2) any such
maintenance obligations caused by Tenant's negligence or its failure to comply
with the provisions of this Lease. Any costs incurred by Landlord in connection
with the repair and maintenance of the roof, any Building systems, Exterior Area
and/or the Common Property shall be considered an Operating Cost to the extent
set forth in, and paid by Tenant in accordance with, Section 4 above. The
Building's Structure does not include skylights, windows, glass or plate glass,
doors, special fronts, or office entries, all which shall be maintained by
Tenant.
(c) EXCESS UTILITY USE. Landlord shall not be required to furnish
electrical current for equipment that requires more than the electrical capacity
currently provided in the Building (the "BASE BUILDING ELECTRICAL CAPACITY").
If Tenant's requirements for or consumption of electricity exceed the Base
Building Electrical Capacity, Landlord shall, at Tenant's expense,
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<PAGE>
make reasonable efforts to supply such service through the then-existing feeders
and risers serving the Building, and Tenant shall pay to Landlord the cost of
such service within ten (10) days after Landlord has delivered to Tenant an
invoice therefor. Landlord may determine the amount of such additional
consumption and potential consumption by any verifiable method, including
installation of a separate meter in the Premises installed, maintained, and read
by Landlord, at Tenant's expense. Tenant shall not install any electrical
equipment requiring special wiring or requiring voltage in excess of the Base
Building Electrical Capacity unless approved in advance by Landlord. The use of
electricity in the Premises shall not exceed the capacity of existing feeders
and risers to or wiring in the Building. Any risers or wiring required to meet
Tenant's excess electrical requirements shall, upon Tenant's written request, be
installed by Landlord, at Tenant's cost, if, in Landlord's judgment, the same
are necessary and shall not cause permanent damage to the Building or the
Premises, cause or create a dangerous or hazardous condition, or entail
excessive or unreasonable alterations, repairs, or expenses. If Tenant uses
machines or equipment in the Building which affect the temperature otherwise
maintained by the air conditioning system or otherwise overload any utility,
Landlord may install supplemental air conditioning units or other supplemental
equipment in the Building, and the cost thereof, including the cost of
installation, operation, use, and maintenance, shall be paid by Tenant to
Landlord within ten (10) days after Landlord has delivered to Tenant an invoice
therefor.
(d) RESTORATION OF SERVICES; ABATEMENT. Landlord shall use
reasonable efforts to restore any service required of it that becomes
unavailable; however, such unavailability shall not render Landlord liable for
any damages caused thereby, be a constructive eviction of Tenant, constitute a
breach of any implied warranty, or, except as provided in the next sentence,
entitle Tenant to any abatement of Tenant's obligations hereunder. If, however,
Tenant is prevented from using the Premises for more than 25 consecutive
business days because of the unavailability of any such service and such
unavailability was not caused by a Tenant Party, then Tenant shall, as its
exclusive remedy be entitled to a reasonable abatement of Rent for each
consecutive day (after such 25-day period) that Tenant is so prevented from
using the Premises.
8. IMPROVEMENTS; ALTERATIONS; REPAIRS; MAINTENANCE.
------------------------------------------------
(a) IMPROVEMENTS; ALTERATIONS. Improvements to the Premises shall
be installed at Tenant's expense only in accordance with plans and
specifications which have been previously submitted to and approved in writing
by Landlord, and no alterations or physical additions in or to the Premises may
be made without Landlord's prior written consent. Landlord's approval of any
such plans and specifications and consent of any such alterations and/or
additions shall not be unreasonably withheld, delayed or conditioned; however,
Landlord may withhold its consent to any plans and specifications and/or any
alteration or addition that would affect the Building's Structure or would have
an adverse effect on the Building's heated and refrigerated air conditioning
("HVAC"), plumbing, electrical, or mechanical systems. Notwithstanding the
foregoing, Tenant may from time to time make alterations, additions or
improvements to the Premises, without the consent of Landlord and without
Landlord's approval of plans, provided: (i) the cost thereof shall not exceed
Twenty-Five Thousand Dollars ($25,000.00) (which Twenty-
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Five Thousand Dollars ($25,000.00) shall be exclusive of the cost of any
decorative improvements (i.e., painting and carpeting) and any minor electrical
---
alterations not affecting the base building electrical system) in the aggregate
in any consecutive twelve-month period; (ii) except for such decorative
improvements and minor electrical alterations, Tenant shall, prior to commencing
any such alterations, additions and/or improvements in the Premises in
connection therewith, furnish Landlord with a complete set of plans and
specifications for any such alterations, additions and/or improvements; (iii)
such alterations, additions and/or improvements shall not affect the exterior or
the structure of the Building or have any adverse effect on any of the
mechanical, electrical or plumbing systems of the Building; and (iv) Tenant
shall comply with all requirements of this Lease with respect to such
alterations, additions and/or improvements other than obtaining the prior
approval of Landlord. Tenant shall not paint or install lighting or decorations,
signs, window or door lettering, or advertising media of any type on or about
the Premises which might affect the appearance of the exterior of the Building
or any other portion of the Premises other than the interior of the Building
without the prior written consent of Landlord, which shall not be unreasonably
withheld, delayed or conditioned; however, Landlord may withhold its consent to
any such painting or installation which would affect the appearance of the
exterior of the Building. All alterations, additions, or improvements made in or
upon the Premises shall be removed by Tenant prior to the end of the Term (and
Tenant shall repair all damage caused thereby) if Landlord conditioned its
consent to the initial installation of any such alterations, additions or
improvements upon such removal; otherwise, in the absence of such a removal
condition with respect to each and every alteration, addition or improvement,
all such alterations, additions or improvements (excluding moveable partitions
and Tenant's trade fixtures and personal property) shall remain on the Premises
at the end of the Term without compensation to Tenant. All alterations,
additions, and improvements shall be constructed, maintained, and used by
Tenant, at its risk and expense, in accordance with all Laws; Landlord's
approval of the plans and specifications therefor shall not be a representation
by Landlord that such alterations, additions, or improvements comply with any
Law.
(b) REPAIRS; MAINTENANCE. Subject to Landlord's obligations set
forth in Section 7.(b) above, Tenant shall maintain the interior of the Building
in a clean and safe condition and in as good and operable condition as exists
after the construction of the Work (as hereinafter defined) and any other
alterations, additions or improvements performed by Tenant, reasonable wear and
tear and damage by fire, other casualty and eminent domain excepted, and shall
not permit or allow to remain any waste or damage to any portion of the
Premises. Tenant shall repair or replace, subject to Landlord's direction and
supervision, any improvement or system installed by a Tenant Party within the
Premises and any damage to the Building caused by a Tenant Party. If Tenant
fails to make such repairs or replacements within thirty (30) days (or such
shorter period of time required to prevent any damage from occurring to the
Premises) after the occurrence of such damage, then Landlord may make the same
at Tenant's cost.
(c) PERFORMANCE OF WORK. All work described in this Section 8
shall be performed only by Landlord or by contractors and subcontractors
approved in writing by Landlord, which approval shall not be unreasonably
withheld, delayed or conditioned. Tenant
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shall cause all contractors and subcontractors to procure and maintain insurance
coverage naming Landlord as an additional insured against such risks, in such
amounts, and with such companies as Landlord may reasonably require. All such
work shall be performed in accordance with all Laws and in a good and
workmanlike manner so as not to damage the Building (including the Premises, the
structural elements, and the plumbing, electrical lines, or other utility
transmission facility). All such work which may affect the Building's HVAC,
electrical, plumbing, other mechanical systems, or structural elements must be
approved by the Building's engineer of record (which approval shall not be
unreasonably withheld, delayed or conditioned), at Tenant's expense and, with
respect to structural elements, at Landlord's election, must be performed by
Landlord's usual contractors for such work.
Tenant shall provide to Landlord the names, addresses and copies of
contracts for all contractors, and upon completion of any work shall promptly
furnish Landlord with full and final waivers of lien covering all labors and
materials included in the work in question.
(d) MECHANIC'S LIENS. Tenant shall not permit any mechanic's
liens to be filed against the Premises or the Building for any work performed,
materials furnished, or obligation incurred by or at the request of Tenant. If
such a lien is filed, then Tenant shall, within ten days after Landlord has
delivered notice of the filing thereof to Tenant, either pay the amount of the
lien or diligently contest such lien and deliver to Landlord a bond or other
security reasonably satisfactory to Landlord. If Tenant fails to timely take
either such action, then Landlord may pay the lien claim, and any amounts so
paid, including expenses and interest, shall be paid by Tenant to Landlord
within ten days after Landlord has invoiced Tenant therefor.
(e) UTILITIES. Tenant shall obtain and pay for all water, gas,
electricity, heat, telephone, sewer, sprinkler charges and other utilities and
services used at the Premises, together with all taxes, penalties, surcharges,
and maintenance charges pertaining thereto. To the extent Tenant is not billed
directly for any such utilities, any amounts payable by Tenant under this
Section shall be due within ten (10) days after Landlord has invoiced Tenant
therefor.
(f) FLOOR LOAD; HEAVY MACHINERY. (i) Tenant shall not place a load
upon any floor in the Building exceeding the floor load per square foot of area
which such floor was designed to carry or which is allowed by law. Landlord
reserves the right to prescribe the weight and position of all business machines
and mechanical equipment, including safes, which shall be placed so as to
distribute the weight. Business machines and mechanical equipment shall be
placed and maintained by Tenant at Tenant's expense in settings sufficient, in
Landlord's judgment, to absorb and prevent vibration, noise and annoyance.
Tenant shall not move any safe, heavy machinery and/or heavy equipment into or
out of the Building without Landlord's prior consent, which consent may include
a requirement to provide insurance, naming Landlord as an insured, in such
amounts as Landlord may deem reasonable.
(ii) If such safe, machinery, equipment, freight, bulky matter or
fixtures requires special handling, Tenant agrees that all work in connection
therewith shall comply with
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applicable laws and regulations. Any such moving shall be at the sole risk and
hazard of Tenant, and Tenant will exonerate, indemnify and save Landlord
harmless against and from any liability, loss, injury, claim or suit resulting
directly or indirectly from such moving.
9. USE. Tenant shall continuously occupy and use the Premises only for
the Permitted Use, and for no other purposes, and shall comply with all Laws
relating to the use, condition, access to, and occupancy of the Premises. The
population density within the Premises as a whole shall at no time exceed one
person for each 250 rentable square feet in the Premises. The Premises shall
not be used for any use which creates extraordinary fire hazards, or for the
storage of any Hazardous Materials. If, because of any Tenant Party's acts, the
rate of insurance on the Building or its contents increases, then Tenant shall
pay to Landlord the amount of such increase within thirty (30) days of
Landlord's written notice therefor, and acceptance of such payment shall not
waive any of Landlord's other rights. If Tenant fails to cease or remediate
such acts within five (5) days after Landlord's request that Tenant do so, then
such acts shall be an Event of Default. Tenant shall conduct its business and
control each other Tenant Party so as not to create any nuisance or unreasonably
interfere with Landlord in its management of the Building.
10. ASSIGNMENT AND SUBLETTING
-------------------------
(a) TRANSFERS. Except as provided in Section 10.(g), Tenant shall
not, without the prior written consent of Landlord, (1) assign, transfer, or
encumber this Lease or any estate or interest herein, whether directly or by
operation of law, (2) permit any other entity to become Tenant hereunder by
merger, consolidation, or other reorganization, (3) if Tenant is an entity other
than a corporation whose stock is publicly traded (or which will be publicly
traded upon the consummation of the transfer at issue), permit the transfer of
an interest in Tenant's capital stock so as to result in a change in the current
control of Tenant, (4) sublet any portion of the Premises, (5) grant any
license, concession, or other right of occupancy of any portion of the Premises,
or (6) permit the use of the Premises by any parties other than Tenant (any of
the events listed in Section 10.(a)(1) through 10.(a)(6) being a "TRANSFER").
(b) CONSENT STANDARDS. Landlord shall not unreasonably withhold its
consent to any assignment or subletting of the Premises, provided that the
proposed transferee (A) is creditworthy, (B) has a good reputation in the
business community, (C) will use the Premises for the Permitted Use (thus,
excluding, without limitation, uses for credit processing and telemarketing),
and (D) is not a governmental entity, or subdivision or agency thereof. If the
proposed transferee does not meet the criteria set forth in clauses (A) through
(D) above, Landlord may withhold its consent in its sole discretion.
(c) REQUEST FOR CONSENT. If Tenant requests Landlord's consent to
a Transfer, then Tenant shall provide Landlord with a written description of all
terms and conditions of the proposed Transfer, copies of the proposed
documentation, and the following information about the proposed transferee: name
and address; reasonably satisfactory information about its business and business
history; its proposed use of the Premises; reasonable banking, financial, and
other
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credit information; and general references sufficient to enable Landlord
reasonably to determine the proposed transferee's creditworthiness and
character. Concurrently with Tenant's notice of any request for consent to a
Transfer, Tenant shall pay to Landlord a fee of $750.00 to defray Landlord's
expenses in reviewing such request, and Tenant shall also reimburse Landlord,
within thirty (30) days of receiving a written invoice, for its reasonable
attorneys' fees incurred in connection with considering any request for consent
to a Transfer (which attorneys' fees shall not exceed $2,500.00 unless otherwise
agreed to by Tenant).
(d) CONDITIONS TO CONSENT. If Landlord consents to a proposed
Transfer, then the proposed transferee shall deliver to Landlord a written
agreement whereby it expressly assumes Tenant's obligations hereunder; however,
any transferee of less than all of the space in the Premises shall be liable
only for obligations under this Lease that are properly allocable to the space
subject to the Transfer for the period of the Transfer. No Transfer shall
release Tenant from its obligations under this Lease, but rather Tenant and its
transferee shall be jointly and severally liable therefor. Landlord's consent
to any Transfer shall not waive Landlord's rights as to any subsequent
Transfers. If an Event of Default occurs while the Premises or any part thereof
are subject to a Transfer, then Landlord, in addition to its other remedies, may
collect directly from such transferee all rents becoming due to Tenant and apply
such rents against Rent. Tenant authorizes its transferees to make payments of
rent directly to Landlord upon receipt of notice from Landlord claiming the
existence of an Event of Default. Tenant shall pay for the cost of any demising
walls or other improvements necessitated by a proposed subletting or assignment.
(e) CANCELLATION. Landlord may, within fifteen (15) business days
after submission of Tenant's written request for Landlord's consent to an
assignment or a sublease of the entire Premises for the then balance of the
Term, cancel this Lease as of the date the proposed Transfer is to be effective.
If Landlord cancels this Lease, Tenant shall pay to Landlord all Rent accrued
through the cancellation date. Thereafter, Landlord may lease the Premises to
the prospective transferee (or to any other person) without liability to Tenant.
(f) ADDITIONAL COMPENSATION. Tenant shall pay to Landlord,
immediately upon receipt thereof, fifty percent (50%) of the excess of (1) all
compensation received by Tenant and attributable to Tenant's interest under this
Lease or in the Premises which is the subject of such Transfer less the costs
reasonably incurred by Tenant with unaffiliated third parties in connection with
such Transfer (i.e., brokerage commissions, tenant finish work, and the like)
----
over (2) the Rent allocable to the portion of the Premises which is the subject
of such Transfer. While any Event of Default exists, Tenant shall pay to
Landlord, immediately upon receipt thereof, one hundred percent (100%) of the
excess of (i) all compensation received by Tenant for a Transfer over (ii) the
Rent applicable to the portion of the Premises covered thereby.
(g) PERMITTED TRANSFERS. Notwithstanding Section 10.(a), Tenant
may effect a Transfer of all or part of its interest in this Lease or all or
part of the Premises (a "PERMITTED TRANSFER") to the following types of entities
(a "PERMITTED TRANSFEREE") without the written consent of Landlord:
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(1) an Affiliate of Tenant;
(2) any corporation, limited partnership, limited liability
partnership, limited liability company or other business entity in which or
with which Tenant, or its corporate successors or assigns, is merged or
consolidated, in accordance with applicable statutory provisions governing
merger and consolidation of business entities, so long as (A) Tenant's
obligations hereunder are assumed by the entity surviving such merger or
created by such consolidation; and (B) the Tangible Net Worth of the
surviving or created entity is not less than the greater of (i) the
Tangible Net Worth of Tenant as of the date hereof, or (ii) the Tangible
Net Worth of Tenant at the time of any such Permitted Transfer; or
(3) any corporation, limited partnership, limited liability
partnership, limited liability company or other business entity acquiring
all or substantially all of Tenant's assets if such entity's Tangible Net
Worth after such acquisition is not less than the greater of (i) the
Tangible Net Worth of Tenant as of the date hereof, or (ii) the Tangible
Net Worth of Tenant at the time of any such Permitted Transfer.
Tenant shall promptly notify Landlord of any such Permitted Transfer.
Tenant shall remain liable for the performance of all of the obligations of
Tenant hereunder, or if Tenant no longer exists because of a merger,
consolidation, or acquisition, the surviving or acquiring entity shall expressly
assume in writing the obligations of Tenant hereunder. Additionally, the
Permitted Transferee shall comply with all of the terms and conditions of this
Lease, including the Permitted Use. At least 30 days after the effective date
of any Permitted Transfer, Tenant agrees to furnish Landlord with copies of the
instrument effecting any of the foregoing Transfers and documentation
establishing Tenant's satisfaction of the requirements set forth above
applicable to any such Transfer. The occurrence of a Permitted Transfer shall
not waive Landlord's rights as to any subsequent Transfers. "TANGIBLE NET WORTH"
means the excess of total assets over total liabilities, in each case as
determined in accordance with generally accepted accounting principles
consistently applied ("GAAP"), excluding, however, from the determination of
total assets all assets which would be classified as intangible assets under
GAAP including, without limitation, goodwill, licenses, patents, trademarks,
trade names, copyrights, and franchises. Any subsequent Transfer by a Permitted
Transferee shall be subject to the provisions of this Section 10.
11. INSURANCE; WAIVERS; SUBROGATION; INDEMNITY
------------------------------------------
(a) TENANT'S INSURANCE. Tenant shall maintain throughout the Term
the following insurance policies: (1) commercial general liability insurance in
amounts of $3,000,000.00 per occurrence or such other amounts as Landlord may
from time to time reasonably require, insuring Tenant and, naming as additional
insureds, Landlord and, if specified by written notice to Tenant, Landlord's
agents and their respective Affiliates, against all liability for injury to or
death of a person or persons or damage to property arising from the use and
occupancy of the Premises, (2) insurance covering the full value of Tenant's
fixtures (including
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trade fixtures), personal property and the trade fixtures and personal property
of others in the Premises, (3) contractual liability insurance sufficient to
cover Tenant's indemnity obligations for Losses (as hereinafter defined) assumed
under this Lease (but only if such contractual liability insurance is not
already included in Tenant's commercial general liability insurance policy), (4)
worker's compensation insurance, containing a waiver of subrogation endorsement
acceptable to Landlord, and (5) business interruption insurance. Tenant's
insurance shall provide primary coverage to Landlord when any policy issued to
Landlord provides duplicate or similar coverage, and in such circumstance
Landlord's policy will be excess over Tenant's policy. Tenant shall furnish to
Landlord certificates of such insurance and such other evidence reasonably
satisfactory to Landlord of the maintenance of all insurance coverages required
hereunder, and Tenant shall obtain a written obligation on the part of each
insurance company to notify Landlord at least 30 days before cancellation or a
material change of any such insurance policies. All such insurance policies
shall be in form, and issued by companies, reasonably satisfactory to Landlord.
(b) LANDLORD'S INSURANCE. Throughout the Term of this Lease,
Landlord shall maintain, as a minimum, the following insurance policies: (1)
fire and extended risk insurance covering the Building's replacement value and
(2) commercial general liability insurance in an amount not less than
$3,000,000.00. The cost of such insurance carried by Landlord with respect to
the Premises shall be included in Operating Costs.
(c) WAIVER OF NEGLIGENCE; NO SUBROGATION. Landlord and Tenant each
waives any claim it might have against the other for any injury to or death of
any person or persons or damage to or theft, destruction, loss, or loss of use
of any property (a "LOSS"), to the extent the same is insured against under any
insurance policy that covers the Building, the Premises, Landlord's or Tenant's
fixtures, personal property, leasehold improvements, or business, or is required
to be insured against under the terms hereof, REGARDLESS OF WHETHER THE
NEGLIGENCE OF THE OTHER PARTY CAUSED SUCH LOSS; however, Landlord's waiver shall
not include any deductible amounts on insurance policies carried by Landlord.
Each party shall cause its insurance carrier to endorse all applicable policies
waiving the carrier's rights of recovery under subrogation or otherwise against
the other party.
(d) TENANT'S INDEMNITY. Subject to Section 11.(c), Tenant shall
defend, indemnify, and hold harmless Landlord and its representatives and agents
from and against all claims, demands, liabilities, causes of action, suits,
judgments, damages, and expenses (including reasonable attorneys' fees) arising
from (1) any Loss arising from any occurrence on the Premises (other than any
Loss arising out of a breach of Tenant's obligations under Section 25.(t), which
shall be subject to the indemnity in such section) or (2) Tenant's failure to
perform its obligations under this Lease, except to the extent caused by the
negligence or fault of Landlord or its agents, employees or contractors. This
indemnity provision shall survive termination or expiration of this Lease. If
any proceeding is filed for which indemnity is required hereunder, Tenant
agrees, upon request therefor, to defend the indemnified party in such
proceeding at its sole cost utilizing counsel reasonably satisfactory to the
indemnified party.
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(e) LANDLORD'S INDEMNITY. Subject to Section 11.(c), Landlord shall
defend, indemnify, and hold harmless Tenant and its agents and employees from
and against all claims, demands, liabilities, causes of action, suits, judgments
and expenses (including attorneys' fees) for any Loss arising from any
occurrence at the Premises caused or materially contributed to by Landlord's
gross negligence or willful misconduct in acting or failing to act, except to
the extent caused by the negligence or willful misconduct of Tenant or any
Tenant Party. If any proceeding is filed for which indemnity is required under
this Section 11.(e), Landlord shall, upon request therefor, defend the
indemnified party in such proceeding at its sole cost utilizing counsel
reasonably satisfactory to the indemnified party. The provisions of this
Section 11.(e) shall survive the expiration or termination of this Lease.
12. SUBORDINATION; ATTORNMENT; NOTICE TO LANDLORD'S MORTGAGEE
---------------------------------------------------------
(a) SUBORDINATION. This Lease shall be subordinate to any deed of
trust, mortgage, or other security instrument, or any ground lease, master
lease, or primary lease (any such security instrument or lease, a "MORTGAGE"),
that now or hereafter covers all or any part of the Premises (the mortgagee
under any such mortgage or the lessor under any such lease is referred to herein
as a "LANDLORD'S MORTGAGEE"). Any Landlord's Mortgagee may elect, at any time,
unilaterally, to make this Lease superior to its mortgage, ground lease, or
other interest in the Premises by so notifying Tenant in writing. Provided
Tenant receives a Non-Disturbance Agreement from each such Mortgagee, Tenant
shall execute agreements confirming the subordination or superiority of this
Lease to any Mortgage upon Landlord or Landlord's Mortgagee's reasonable
request.
(b) ATTORNMENT. Provided Tenant receives a Non-Disturbance
Agreement from such party, Tenant shall attorn to any party succeeding to
Landlord's interest in the Premises, whether by purchase, foreclosure, deed in
lieu of foreclosure, power of sale, termination of lease, or otherwise, upon
such party's request, on the terms of such Non-Disturbance Agreement and shall
execute such agreements confirming such attornment as such party may reasonably
request.
(c) NOTICE TO LANDLORD'S MORTGAGEE. Tenant shall not seek to
enforce any remedy it may have for any default on the part of Landlord without
first giving written notice by certified mail, return receipt requested,
specifying the default in reasonable detail, to any Landlord's Mortgagee whose
address has been given to Tenant, and affording such Landlord's Mortgagee the
following time periods to perform Landlord's obligations hereunder: (1) at
least fifteen (15) days after receipt of such notice with respect to defaults
that can be cured by the payment of money; or (2) at least thirty (30) days
after receipt of such notice with respect to any other default, unless the cure
requires Landlord's Mortgagee to obtain possession of the Premises, in which
case such thirty (30) day period shall not commence until Landlord's Mortgagee
acquires possession, so long as Landlord's Mortgagee proceeds promptly to
acquire possession of the Premises with due diligence, by foreclosure of the
Mortgage or otherwise.
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(d) LANDLORD'S MORTGAGEE'S PROTECTION PROVISIONS. If Landlord's
Mortgagee shall succeed to the interest of Landlord under this Lease, Landlord's
Mortgagee shall not be: (1) liable for any act or omission of any prior lessor
(including Landlord); (2) bound by any rent or additional rent or advance rent
which Tenant might have paid for more than the current month to any prior lessor
(including Landlord), and all such rent shall remain due and owing,
notwithstanding such advance payment; (3) bound by any security or advance
rental deposit made by Tenant which is not delivered or paid over to Landlord's
Mortgagee and with respect to which Tenant shall look solely to Landlord for
refund or reimbursement; (4) bound by any termination, amendment or modification
of this Lease made without Landlord's Mortgagee's consent and written approval,
except for those terminations, amendments and modifications permitted to be made
by Landlord without Landlord's Mortgagee's consent pursuant to the terms of the
loan documents between Landlord and Landlord's Mortgagee; (5) subject to the
defenses which Tenant might have against any prior lessor (including Landlord);
and (6) subject to the offsets which Tenant might have against any prior lessor
(including Landlord) except for those offset rights which (A) are expressly
provided in this Lease, (B) relate to periods of time following the acquisition
of the Building by Landlord's Mortgagee, and (C) Tenant has provided written
notice to Landlord's Mortgagee and provided Landlord's Mortgagee an opportunity
to cure the event giving rise to such offset event in accordance with the time
periods set forth in Section 12.(c) above. Landlord's Mortgagee shall have no
liability or responsibility under or pursuant to the terms of this Lease or
otherwise after it ceases to own an interest in the Building. Nothing in this
Lease shall be construed to require Landlord's Mortgagee to see to the
application of the proceeds of any loan, and Tenant's agreements set forth
herein shall not be impaired on account of any modification of the documents
evidencing and securing any loan.
(e) SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT.
Simultaneously upon Tenant's execution of this Lease, Tenant shall execute a
Subordination, Non-Disturbance and Attornment Agreement in the form attached
hereto as Exhibit H. Landlord shall return a fully executed Subordination, Non-
---------
Disturbance and Attornment Agreement in the form attached hereto as Exhibit H,
---------
executed by Landlord and the Lender named therein to Tenant as soon as
reasonably possible but not later than ninety (90) days after the date of this
Lease. Landlord shall use reasonable efforts (which efforts shall not require
the expenditure of funds or the threat (or commencement) of litigation) to
obtain a so-called "nondisturbance agreement" from any future Landlord's
Mortgagee in the form attached hereto as Exhibit H or another form reasonably
---------
acceptable to Tenant and such Landlord's Mortgagee or other institutional
lenders (either the form attached hereto as Exhibit H or such other reasonably
---------
acceptable form being herein referred to as the "NON-DISTURBANCE AGREEMENT").
The subordination of Tenant's rights hereunder to any future Landlord's
Mortgagee under Section 12.(a) and the attornment of Tenant to any future
Landlord Mortgagee under Section 12.(b) shall be conditioned upon such future
Landlord's Mortgagee's execution and delivery of a Non-Disturbance Agreement.
13. RULES AND REGULATIONS. Tenant shall comply with the rules and
regulations of the Building which are attached hereto as Exhibit C. Landlord
---------
may, from time to time, change such rules and regulations for the safety, care,
or cleanliness of the Building and related facilities,
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provided that such changes will not unreasonably interfere with Tenant's use of
the Premises. Tenant shall be responsible for the compliance with such rules and
regulations by each Tenant Party.
14. CONDEMNATION.
------------
(a) TOTAL TAKING. If the entire Building or Premises are taken by
right of eminent domain or conveyed in lieu thereof (a "TAKING"), this Lease
shall terminate as of the date of the Taking.
(b) PARTIAL TAKING--TENANT'S RIGHTS. If any part of the Premises
becomes subject to a Taking and such Taking will prevent Tenant from conducting
its business in the Premises in a manner reasonably comparable to that conducted
immediately before such Taking for a period of more than 180 days, then Tenant
may terminate this Lease as of the date of such Taking by giving written notice
to Landlord within 30 days after the Taking, and Rent shall be apportioned as of
the date of such Taking. If Tenant does not terminate this Lease, then Rent
shall be abated on a reasonable basis as to that portion of the Premises
rendered untenantable by the Taking.
(c) PARTIAL TAKING--LANDLORD'S RIGHTS. If such a material
portion, but less than all, of the Premises becomes subject to a Taking that the
remainder of the Premises cannot be restored to a good and operable condition,
or if Landlord is required to pay any of the proceeds received for a Taking to a
Landlord's Mortgagee, then Landlord may terminate this Lease by delivering
written notice thereof to Tenant within 30 days after such Taking, and Rent
shall be apportioned as of the date of such Taking. If Landlord does not so
terminate this Lease, then this Lease will continue, but if any portion of the
Premises has been taken, Rent shall abate as provided in the last sentence of
Section 14.(b).
(d) AWARD. If any Taking occurs, then Landlord shall receive the
entire award or other compensation for the land on which the Building is
situated, the Building, and other improvements taken, and Tenant may separately
pursue a claim (to the extent it will not reduce Landlord's award) against the
condemnor for the value of Tenant's personal property which Tenant is entitled
to remove under this Lease, moving costs, loss of business, and other claims it
may have.
15. FIRE OR OTHER CASUALTY
----------------------
(a) REPAIR ESTIMATE. If the Premises or the Building are damaged
by fire or other casualty (a "CASUALTY"), Landlord shall, within 90 days after
such Casualty, deliver to Tenant a good faith estimate (the "DAMAGE NOTICE") of
the time needed to repair the damage caused by such Casualty.
(b) LANDLORD'S AND TENANT'S RIGHTS. If a material portion of the
Premises or the Building is damaged by Casualty such that Tenant is prevented
from conducting its business
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in the Premises in a manner reasonably comparable to that conducted immediately
before such Casualty and Landlord estimates that the damage caused thereby
cannot be repaired within 270 days after the Casualty, then Tenant may terminate
this Lease by delivering written notice to Landlord of its election to terminate
within 30 days after the Damage Notice has been delivered to Tenant. If Tenant
does not so timely terminate this Lease, then (subject to Section 15.(c))
Landlord shall repair the Building or the Premises, as the case may be, as
provided below, and Rent for the portion of the Premises rendered untenantable
by the damage shall be abated on a reasonable basis from the date of damage
until the completion of the repair, unless a Tenant Party caused such damage, in
which case, Tenant shall continue to pay Rent without abatement.
(c) LANDLORD'S RIGHTS. If a Casualty damages a material portion
of the Building, and Landlord makes a good faith determination that restoring
the Premises would be uneconomical, or if Landlord is required to pay any
insurance proceeds arising out of the Casualty to a Landlord's Mortgagee, then
Landlord may terminate this Lease by giving written notice of its election to
terminate within 30 days after the Damage Notice has been delivered to Tenant,
and Basic Rent and Additional Rent shall be abated as of the date of the
Casualty.
(d) REPAIR OBLIGATION. If neither party elects to terminate this
Lease following a Casualty, then Landlord shall, within a reasonable time after
such Casualty, begin to repair the Premises and shall proceed with reasonable
diligence to restore the Premises to substantially the same condition as they
existed immediately before such Casualty; however, Landlord shall not be
required to repair or replace any of the furniture, equipment, fixtures
(including trade fixtures), and other personal property which may have been
placed by, or at the request of, Tenant or other occupants in the Building or
the Premises, and Landlord's obligation to repair or restore the Building or
Premises shall be limited to the extent of the insurance proceeds actually
received by Landlord for the Casualty in question. If at any time Landlord
reasonably determines that the insurance proceeds shall be insufficient to pay
to substantially complete the restoration of the Premises, Landlord shall give
written notice to Tenant and Tenant shall have the right to terminate this
Lease by written notice to Landlord within 30 days after receipt of such notice
from Landlord.
16. PERSONAL PROPERTY TAXES. Tenant shall be liable for all taxes
levied or assessed against personal property, furniture, or fixtures placed by
Tenant in the Premises. If any taxes for which Tenant is liable are levied or
assessed against Landlord or Landlord's property and Landlord elects to pay the
same after giving written notice to Tenant at least ten (10) business days in
advance, or if the assessed value of Landlord's property is increased by
inclusion of such personal property, furniture or fixtures and Landlord elects
to pay the taxes based on such increase, then Tenant shall pay to Landlord,
within 30 days after receiving written demand, the part of such taxes for which
Tenant is primarily liable hereunder; however, Landlord shall not pay such
amount if Tenant notifies Landlord that it will contest the validity or amount
of such taxes before Landlord makes such payment, and thereafter diligently
proceeds with such contest in accordance with law and if the non-payment thereof
does not pose a threat of loss or seizure of the Building or interest of
Landlord therein or impose any fee or penalty against Landlord.
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17. EVENTS OF DEFAULT. Each of the following occurrences shall be an
"EVENT OF DEFAULT":
(a) Tenant's failure to pay Rent within five days after Landlord has
delivered notice to Tenant that the same is due; however, an Event of Default
shall occur hereunder without any obligation of Landlord to give any notice if
Landlord has given Tenant written notice under this Section 17.(a) on more than
one occasion during the twelve (12) month interval preceding such failure by
Tenant;
(b) Tenant abandons the Premises;
(c) Tenant fails to comply with the Permitted Use set forth herein and
the continuance of such failure for a period of ten (10) days after Landlord has
delivered to Tenant written notice thereof;
(d) Tenant fails to provide any estoppel certificate within the time
period required under Section 25.(e) and such failure shall continue for five
days after written notice thereof from Landlord to Tenant;
(e) Tenant's failure to perform, comply with, or observe any other
agreement or obligation of Tenant under this Lease and the continuance of such
failure for a period of more than 30 days after Landlord has delivered to Tenant
written notice thereof; provided that if the default is of such a nature that it
may not be reasonably cured within thirty (30) days, then no Event of Default
shall occur hereunder if Tenant commences curing same within such thirty (30)
day period and thereafter diligently and continuously pursues such cure to
completion within a period of not more than ninety (90) days after the delivery
of such notice.
(f) The filing of a petition by or against Tenant (the term "TENANT"
shall include, for the purpose of this Section 17.(f), any guarantor of Tenant's
obligations hereunder) (1) in any bankruptcy or other insolvency proceeding; (2)
seeking any relief under any state or federal debtor relief law; (3) for the
appointment of a liquidator or receiver for all or substantially all of Tenant's
property or for Tenant's interest in this Lease; or (4) for the reorganization
or modification of Tenant's capital structure; however, if such a petition is
filed against Tenant, then such filing shall not be an Event of Default unless
Tenant fails to have the proceedings initiated by such petition dismissed within
90 days after the filing thereof.
18. REMEDIES. Upon an Event of Default, Landlord may, in addition to
all other rights and remedies afforded Landlord hereunder, take any of the
following actions:
(a) Terminate this Lease by giving Tenant written notice thereof, in
which event Tenant shall pay to Landlord the sum of (1) all Rent accrued
hereunder through the date of termination, (2) all amounts due under Section
19.(a), and (3) an amount equal to (A) the total Rent that Tenant would have
been required to pay for the remainder of the Term plus Landlord's
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estimate of aggregate expenses of reletting to the Premises (to the extent not
actually reimbursed under said Section 19.(a)), discounted to present value at a
per annum rate equal to the "Prime Rate" as published on the date this Lease is
terminated by The Wall Street Journal, Northeast Edition, in its listing of
-----------------------
"Money Rates," minus one percent, minus (B) the then present fair rental rate
value of the Premises for such period, similarly discounted;
(b) Terminate Tenant's right to possess the Premises without
terminating this Lease by giving written notice thereof to Tenant, in which
event Tenant shall pay to Landlord (1) all Rent and other amounts accrued
hereunder to the date of termination of possession, (2) all amounts due from
time to time under Section 19.(a), and (3) all Rent and other net sums required
hereunder to be paid by Tenant during the remainder of the Term, diminished by
any net sums thereafter received by Landlord through reletting the Premises
during such period, after deducting all out-of-pocket costs incurred by Landlord
in reletting the Premises. Landlord shall use reasonable efforts to relet the
Premises on such terms as Landlord in its sole discretion may determine
(including a term different from the Term, rental concessions, and alterations
to, and improvement of, the Premises). Landlord shall not be liable for, nor
shall Tenant's obligations hereunder be diminished because of, Landlord's
failure to relet the Premises or to collect rent due for such reletting. Tenant
shall not be entitled to the excess of any consideration obtained by reletting
over the Rent due hereunder. Reentry by Landlord in the Premises shall not
affect Tenant's obligations hereunder for the unexpired Term; rather, Landlord
may, from time to time, bring an action against Tenant to collect amounts due by
Tenant, without the necessity of Landlord's waiting until the expiration of the
Term. Unless Landlord delivers written notice to Tenant expressly stating that
it has elected to terminate this Lease, all actions taken by Landlord to
dispossess or exclude Tenant from the Premises shall be deemed to be taken under
this Section 18.(b). If Landlord elects to proceed under this Section 18.(b),
it may at any time elect to terminate this Lease under Section 18.(a); or
(c) Additionally, without notice, Landlord may alter locks or other
security devices at the Premises to deprive Tenant of access thereto, and
Landlord shall not be required to provide a new key or right of access to
Tenant.
Any and all remedies set forth in this Lease: (i) shall be in addition to
any and all other remedies Landlord may have at law or in equity; (ii) shall be
cumulative; and (iii) may be pursued successively or concurrently as Landlord
may elect. The exercise of any remedy by Landlord shall not be deemed an
election of remedies or preclude Landlord from exercising any other remedies in
the future. Notwithstanding the foregoing, Landlord shall only recover its
damages allowed hereunder once.
19. PAYMENT BY TENANT; NON-WAIVER
-----------------------------
(a) PAYMENT BY TENANT. Upon any Event of Default, Tenant shall pay
to Landlord all costs incurred by Landlord (including court costs and reasonable
attorneys' fees and expenses) in (1) obtaining possession of the Premises, (2)
removing and storing Tenant's or any
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<PAGE>
other occupant's property, (3) repairing, restoring, altering, remodeling, or
otherwise putting the Premises into condition acceptable to a new tenant, (4) if
Tenant is dispossessed of the Premises and this Lease is not terminated,
reletting all or any part of the Premises (including brokerage commissions, cost
of tenant finish work, and other costs incidental to such reletting), (5)
performing Tenant's obligations which Tenant failed to perform, and (6)
enforcing, or advising Landlord of, its rights, remedies, and recourses arising
out of the Event of Default. To the full extent permitted by law, Landlord and
Tenant agree the federal and state courts of the state in which the Premises are
located shall have exclusive jurisdiction over any matter relating to or arising
from this Lease and the parties' rights and obligations under this Lease.
(b) NO WAIVER. Landlord's acceptance of Rent following an Event of
Default shall not waive Landlord's rights regarding such Event of Default. No
waiver by Landlord of any violation or breach of any of the terms contained
herein shall waive Landlord's rights regarding any future violation of such
term. Landlord's acceptance of any partial payment of Rent shall not waive
Landlord's rights with regard to the remaining portion of the Rent that is due,
regardless of any endorsement or other statement on any instrument delivered in
payment of Rent or any writing delivered in connection therewith; accordingly,
Landlord's acceptance of a partial payment of Rent shall not constitute an
accord and satisfaction of the full amount of the Rent that is due.
20. LANDLORD'S LIEN. Intentionally omitted, provided that the deletion
of this Section shall not be construed to be a waiver of Landlord's lien rights
provided by law.
21. SURRENDER OF PREMISES. No act by Landlord shall be deemed an
acceptance of a surrender of the Premises, and no agreement to accept a
surrender of the Premises shall be valid unless it is in writing and signed by
Landlord. At the expiration or termination of this Lease, Tenant shall deliver
to Landlord the Premises in the condition required by Section 8.(b) of this
Lease, free of Hazardous Materials placed on the Premises during the Term,
broom-clean, reasonable wear and tear (and condemnation and Casualty damage, as
to which Sections 14 and 15 shall control) excepted, and shall deliver to
Landlord all keys to the Premises. Provided that Tenant has performed all of its
obligations hereunder, Tenant shall remove all trade fixtures, equipment,
furniture, and personal property placed in the Premises by Tenant and all such
alterations, additions, improvements and wiring which, when approved by
Landlord, were required to be removed from the Premises at the earlier
expiration or termination of the Term of this Lease, and may remove all such
fixtures, alterations, additions, improvements and wiring which, when approved
by Landlord, were permitted to be removed by Tenant from the Premises at the
earlier expiration or termination of the Term of this Lease. Tenant shall
repair all damage caused by such removal. All items not so removed shall, at
Landlord's option, be deemed to have been abandoned by Tenant and may be
appropriated, sold, stored, destroyed, or otherwise disposed of by Landlord
without notice to Tenant and without any obligation to account for such items;
any such disposition shall not be considered a strict foreclosure. The
provisions of this Section 21 shall survive the end of the Term.
23
<PAGE>
22. HOLDING OVER. If Tenant fails to vacate the Premises at the end of
the Term, then Tenant shall be a tenant at sufferance and, in addition to all
other damages and remedies to which Landlord may be entitled for such holding
over, Tenant shall pay, in addition to the other Rent, a daily rate of Basic
Rent equal to the greater of (a) 150% of the daily Basic Rent payable during the
last month of the Term, or (b) 125% of the prevailing rental rate in the
Building for similar space. The provisions of this Section 22 shall not be
deemed to limit or constitute a waiver of any other rights or remedies of
Landlord provided herein or at law. If Tenant fails to surrender the Premises
upon the termination or expiration of this Lease, in addition to any other
liabilities to Landlord accruing therefrom, Tenant shall protect, defend,
indemnify and hold Landlord harmless from all loss, costs (including reasonable
attorneys' fees) and liability resulting from such failure, including, without
limiting the generality of the foregoing, any claims made by any succeeding
tenant founded upon such failure to surrender, and any lost profits to Landlord
resulting therefrom.
23. CERTAIN RIGHTS RESERVED BY LANDLORD. Provided that the exercise of
such rights does not unreasonably interfere with Tenant's occupancy of the
Premises, Landlord shall have the following rights:
(a) To make inspections and to complete repairs, alterations,
additions, changes, or improvements required to be performed by Landlord under
this Lease, whether structural or otherwise, in and about the Building, or any
part thereof; to enter upon the Premises (after giving Tenant reasonable advance
notice thereof, except in cases of real or apparent emergency, in which case no
notice shall be required) for any of the foregoing purposes and, during the
continuance of any such work, to temporarily close doors, entryways, public
space, and corridors in the Building; to interrupt or temporarily suspend
Building services and facilities provided that Landlord shall minimize any
interference with Tenant's business operations; and to change the name of the
Building;
(b) To take such reasonable measures as Landlord deems advisable for
the security of the Building and its occupants; evacuating the Building for
cause, suspected cause, or for drill purposes; and temporarily denying access to
the Building (which access shall not be denied for any reason within Landlord's
control for longer than one (1) business day);
(c) Upon at least twenty-four (24) hours prior reasonable notice
(which may be by telephone) to Tenant and, if requested by Tenant, in the
presence of Tenant or its agent, to enter the Premises at reasonable hours to
show the Premises to prospective purchasers, lenders, or, during the last 12
months of the Term, tenants.
24. INTENTIONALLY DELETED.
---------------------
25. MISCELLANEOUS.
-------------
(a) LANDLORD TRANSFER. Landlord may transfer any portion of the
Building and any of its rights under this Lease. If Landlord assigns its rights
under this Lease, then Landlord
24
<PAGE>
shall thereby be released from any further obligations hereunder arising after
the date of transfer, provided that the assignee assumes Landlord's obligations
hereunder in writing.
(b) LANDLORD'S LIABILITY. The liability of Landlord to Tenant for
any default by Landlord under the terms of this Lease shall be limited to
Tenant's actual direct, but not consequential, damages therefor and shall be
recoverable only from the interest of Landlord in the Premises and the proceeds
of any insurance relating to the Premises, and Landlord shall not be personally
liable for any deficiency (except for any such insurance proceeds). This
Section shall not limit any remedies which Tenant may have for Landlord's
defaults which do not involve the personal liability of Landlord.
(c) FORCE MAJEURE. Other than for Tenant's obligations under this
Lease that can be performed by the payment of money (e.g., payment of Rent and
maintenance of insurance), whenever a period of time is herein prescribed for
action to be taken by either party hereto, such party shall not be liable or
responsible for, and there shall be excluded from the computation of any such
period of time, any delays due to strikes, riots, acts of God, shortages of
labor or materials, war, governmental laws, regulations, or restrictions, or any
other causes of any kind whatsoever which are beyond the control of such party.
(d) BROKERAGE. Neither Landlord nor Tenant has dealt with any
broker or agent in connection with the negotiation or execution of this Lease,
other than Grubb & Ellis Management Services, Inc. and Boston Real Estate
Partners, whose commission shall be paid by Landlord. Tenant and Landlord shall
each indemnify the other against all costs, expenses, attorneys' fees, and other
liability for commissions or other compensation claimed by any broker or agent
claiming the same by, through, or under the indemnifying party.
(e) ESTOPPEL CERTIFICATES. From time to time, Tenant shall furnish
to any party designated by Landlord, within ten days after Landlord has made a
written request therefor, a certificate signed by Tenant confirming and
containing such factual certifications and representations as to this Lease as
Landlord may reasonably request. Unless otherwise required by Landlord's
Mortgagee or a prospective purchaser or mortgagee of the Building, the initial
form of estoppel certificate to be signed by Tenant is attached hereto as
Exhibit F.
(f) NOTICES. All notices and other communications given pursuant
to this Lease shall be in writing and shall be (1) mailed by first class, United
States Mail, postage prepaid, certified, with return receipt requested, and
addressed to the parties hereto at the address specified in the Basic Lease
Information, (2) hand delivered to the intended address provided a
representative of Tenant acknowledges receipt of any such communication, or (3)
sent by a nationally recognized overnight courier service. All notices shall be
effective upon delivery to the address of the addressee. The parties hereto may
change their addresses by giving notice thereof to the other in conformity with
this provision.
(g) SEPARABILITY. If any clause or provision of this Lease is
illegal, invalid, or unenforceable under present or future laws, then the
remainder of this Lease shall not be affected thereby and in lieu of such clause
or provision, there shall be added as a part of this Lease a clause
25
<PAGE>
or provision as similar in terms to such illegal, invalid, or unenforceable
clause or provision as may be possible and be legal, valid, and enforceable.
(h) AMENDMENTS; AND BINDING EFFECT. This Lease may not be amended
except by instrument in writing signed by Landlord and Tenant. No provision of
this Lease shall be deemed to have been waived by Landlord unless such waiver is
in writing signed by Landlord, and no custom or practice which may evolve
between the parties in the administration of the terms hereof shall waive or
diminish the right of Landlord to insist upon the performance by Tenant in
strict accordance with the terms hereof. The terms and conditions contained in
this Lease shall inure to the benefit of and be binding upon the parties hereto,
and upon their respective successors in interest and legal representatives,
except as otherwise herein expressly provided. This Lease is for the sole
benefit of Landlord and Tenant, and, other than Landlord's Mortgagee, no third
party shall be deemed a third party beneficiary hereof.
(i) QUIET ENJOYMENT. Provided Tenant has performed all of its
obligations hereunder, Tenant shall peaceably and quietly hold and enjoy the
Premises for the Term, without hindrance from Landlord or any party claiming by,
through, or under Landlord, but not otherwise, subject to the terms and
conditions of this Lease. Landlord represents to Tenant that Landlord is the
record owner of the Building in fee simple absolute.
(j) NO MERGER. There shall be no merger of the leasehold estate
hereby created with the fee estate in the Premises or any part thereof if the
same person acquires or holds, directly or indirectly, this Lease or any
interest in this Lease and the fee estate in the leasehold Premises or any
interest in such fee estate.
(k) NO OFFER. The submission of this Lease to Tenant shall not be
construed as an offer, and Tenant shall not have any rights under this Lease
unless Landlord executes a copy of this Lease and delivers it to Tenant.
(l) ENTIRE AGREEMENT. This Lease constitutes the entire agreement
between Landlord and Tenant regarding the subject matter hereof and supersedes
all oral statements and prior writings relating thereto. Except for those set
forth in this Lease, no representations, warranties, or agreements have been
made by Landlord or Tenant to the other with respect to this Lease or the
obligations of Landlord or Tenant in connection therewith. The normal rule of
construction that any ambiguities be resolved against the drafting party shall
not apply to the interpretation of this Lease or any exhibits or amendments
hereto.
(m) WAIVER OF JURY TRIAL. To the maximum extent permitted by law,
Landlord and Tenant each waive right to trial by jury in any litigation arising
out of or with respect to this Lease.
(n) GOVERNING LAW. This Lease shall be governed by and construed
in accordance with the laws of the State in which the Premises are located.
26
<PAGE>
(o) JOINT AND SEVERAL LIABILITY. If Tenant is comprised of more
than one party, each such party shall be jointly and severally liable for
Tenant's obligations under this Lease.
(p) FINANCIAL REPORTS. Within 15 days after Landlord's request,
Tenant will furnish Tenant's most recent audited financial statements (including
any notes to them) to Landlord, or, if no such audited statements have been
prepared, such other financial statements (and notes to them) as may have been
most recently prepared by an independent certified public accountant or, failing
those, Tenant's most recent internally prepared financial statements. If Tenant
is a publicly traded corporation, Tenant may satisfy its obligations hereunder
by providing to Landlord Tenant's most recent annual and quarterly reports. If
Tenant is not a publicly traded corporation, Tenant will discuss its financial
statements with Landlord. Landlord will not disclose any aspect of Tenant's
financial statements that Tenant designates to Landlord as confidential except
(1) to Landlord's Mortgagee or prospective purchasers of the Building, (2) in
litigation between Landlord and Tenant, and (3) if required by court order.
Tenant shall not be required to deliver the financial statements required under
this Section 25.(p) more than once in any 12-month period unless requested by
Landlord's Mortgagee or a prospective buyer or lender of the Building or an
Event of Default occurs.
(q) LANDLORD'S FEES. Whenever Tenant requests Landlord to take
any action not required of it hereunder or give any consent required or
permitted under this Lease, Tenant will reimburse Landlord for Landlord's
reasonable out-of-pocket costs payable to third parties and incurred by Landlord
in reviewing the proposed action or consent, including without limitation
reasonable attorneys', engineers' or architects' fees, within thirty (30) days
after Landlord's delivery to Tenant of a statement of such costs. Tenant will
be obligated to make such reimbursement without regard to whether Landlord
consents to any such proposed action.
(r) [INTENTIONALLY OMITTED]
(s) CONFIDENTIALITY. Tenant acknowledges that the terms and
conditions of this Lease are to remain confidential for Landlord's benefit, and
may not be disclosed by Tenant to anyone, by any manner or means, directly or
indirectly, without Landlord's prior written consent, other than to Tenant's
lenders, accountants, attorneys and other advisors provided such advisors agree
to keep the terms and conditions of this Lease confidential to the extent
required under this Section 25.(s) or in connection with any litigation
proceeding and/or in order to comply with any federal, state or municipal laws,
regulations, rules, ordinances and/or judicial or administrative directive
and/or any rules or regulations of any stock exchange, including any requirement
to attach this Lease as an exhibit to any filing with the Securities and
Exchange Commission. The consent by Landlord to any disclosures shall not be
deemed to be a waiver on the part of Landlord of any prohibition against any
future disclosure.
(t) HAZARDOUS MATERIALS. The term "HAZARDOUS MATERIALS" means any
substance, material, or waste which is now or hereafter classified or considered
to be hazardous, toxic, or dangerous under any Law relating to pollution or the
protection or regulation of human health, natural resources or the environment,
or poses or threatens to pose a hazard to the health or safety of persons on the
Premises or in the Building. Tenant shall not use, generate, store, or
27
<PAGE>
dispose of, or permit the use, generation, storage or disposal of Hazardous
Materials on or about the Premises or the Building except in a manner and
quantity necessary for the ordinary performance of Tenant's business, and then
in compliance with all Laws. If Tenant breaches its obligations under this
Section 25.(t), Landlord may immediately take any and all action reasonably
appropriate to remedy the same, including taking all appropriate action to clean
up or remediate any contamination resulting from Tenant's use, generation,
storage or disposal of Hazardous Materials. Tenant shall defend, indemnify, and
hold harmless Landlord and its representatives and agents from and against any
and all claims, demands, liabilities, causes of action, suits, judgments,
damages and expenses (including reasonable attorneys' fees and cost of clean up
and remediation) arising from Tenant's failure to comply with the provisions of
this Section 25.(t). This indemnity provision shall survive termination or
expiration of the Lease. Except as set forth in the Environmental Reports (as
hereinafter defined), to the actual knowledge of Landlord, Landlord represents
that there are no Hazardous Materials on the Premises as of the date of this
Lease. For the purposes hereof, "Environmental Reports" shall mean,
collectively, that certain Phase I Environmental Site Assessment Report and that
certain Subsurface Investigation Report prepared in October, 1997 by ENSR in
connection with, among other properties, the Premises, and that certain Physical
Conditions Survey Report dated October 20, 1997 and prepared by Merritt &
Harris, Inc. in connection with the Premises.
<TABLE>
<CAPTION>
(u) LIST OF EXHIBITS. All exhibits and attachments attached hereto are
----------------
incorporated herein by this reference.
<S> <C>
Exhibit A - Survey of Premises
Exhibit B - Legal Description of Building
Exhibit C - Building Rules and Regulations
Exhibit D - Tenant Finish-Work: Allowance
Exhibit E - Amendment No. 1
Exhibit F - Form of Tenant Estoppel Certificate
Exhibit G - Extension Option
Exhibit H - Form of Subordination, Non-Disturbance and Attornment Agreement
Exhibit I - Letter of Credit
</TABLE>
(v) TIME OF ESSENCE. Time is of the essence of this Lease and each
and all of its provisions.
(w) SIGNAGE. Tenant may install, at Tenant's risk and expense,
exterior signage on the Building, in accordance with all Laws and subject to
Landlord's prior approval and consent, which shall not be unreasonably withheld,
delayed or conditioned.
(x) ACCESS. Tenant shall have twenty-four (24) hour access to the
Premises seven (7) days a week (subject to force majeure, emergency, etc.).
(y) FAILURE OF TENANT TO CONTINUOUSLY OCCUPY THE PREMISES. If, for
more than three hundred sixty-five (365) days, Tenant (1) vacates the Premises
or (2) fails to continuously operate its business therein, Landlord may
terminate the Lease upon giving written
28
<PAGE>
notice to Tenant as of the date specified in such notice. If Landlord terminates
this Lease, then this Lease shall terminate and neither party shall have any
further obligations hereunder as of the terminate date except as otherwise
provided herein and Tenant shall pay to Landlord all Rent accrued through the
termination date. Thereafter, Landlord may lease the Premises (or any portion
thereof) to any person without liability to Tenant.
26. OTHER PROVISIONS. LANDLORD AND TENANT EXPRESSLY DISCLAIM ANY
IMPLIED WARRANTY THAT THE PREMISES ARE SUITABLE FOR TENANT'S INTENDED COMMERCIAL
PURPOSE, AND TENANT'S OBLIGATION TO PAY RENT HEREUNDER IS NOT DEPENDENT UPON THE
CONDITION OF THE PREMISES OR THE PERFORMANCE BY LANDLORD OF ITS OBLIGATIONS
HEREUNDER, AND, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, TENANT SHALL
CONTINUE TO PAY THE RENT, WITHOUT ABATEMENT, SET-OFF OR DEDUCTION,
NOTWITHSTANDING ANY BREACH BY LANDLORD OF ITS DUTIES OR OBLIGATIONS HEREUNDER,
WHETHER EXPRESS OR IMPLIED.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
29
<PAGE>
IN WITNESS WHEREOF, and in consideration of the mutual entry into this
Lease and for other good and valuable consideration, and intending to be legally
bound, each party hereto has caused this Lease Agreement to be duly executed as
a Massachusetts instrument under seal as of the day and year first above
written.
TENANT:
SYCAMORE NETWORKS, INC.,
a Delaware corporation
By:
-----------------------------------
Name:
----------------------------
Title: President/Vice President
By:
---------------------------------------
Name:
---------------------------------
Title: Treasurer/Assistant Treasurer
LANDLORD:
W9/TIB REAL ESTATE LIMITED
PARTNERSHIP, a Delaware limited partnership
By: W9/TIB Gen-Par, Inc., a Delaware
corporation, its general partner
By:
---------------------------------
Name:
----------------------------
Title:
----------------------------
30
<PAGE>
EXHIBIT A
---------
SURVEY OF PREMISES
------------------
A-1
<PAGE>
EXHIBIT B
---------
LEGAL DESCRIPTION OF BUILDING
-----------------------------
Lot 2B as shown on that certain plan entitled "Plan of Land of Billerica Road
Site, Chelmsford, MA", which plan is recorded with the Middlesex North District
Registry of Deeds in Plan Book 143 as Plan 143.
B-1
<PAGE>
EXHIBIT C
---------
BUILDING RULES AND REGULATIONS
------------------------------
The following rules and regulations shall apply to the Premises, the
Building, and the appurtenances thereto:
1. Sidewalks, doorways, vestibules, halls, stairways, and other similar
areas shall not be obstructed by Tenant or used by Tenant for purposes other
than ingress and egress to and from the Premises and for going from one to
another part of the Building.
2. Plumbing, fixtures and appliances shall be used only for the purposes
for which designed, and no sweepings, rubbish, rags or other unsuitable material
shall be thrown or deposited therein. Damage resulting to any such fixtures or
appliances from misuse by Tenant or its agents, employees or invitees, shall be
paid by Tenant.
3. No signs, advertisements or notices shall be painted or affixed on or
to any windows or exterior doors or other exterior part of the Building without
the prior written consent of Landlord. No curtains or other window treatments
shall be placed between the glass and the Building standard window treatments.
4. Landlord shall provide all door locks to the Premises, at the cost of
Tenant, and Tenant shall not place any additional door locks in the Premises
without Landlord's prior written consent, which consent shall not be
unreasonably withheld, delayed or conditioned. Landlord shall furnish to Tenant
a reasonable number of keys to the Premises, at Tenant's cost, and Tenant shall
not make a duplicate thereof.
5. Tenant assumes all risks of and shall be liable for all damage to
articles moved and injury to persons or public engaged or not engaged in such
movement, including equipment, property and personnel of Landlord if damaged or
injured as a result of acts in connection with carrying out this service for
such tenant.
6. Landlord may reasonably prescribe weight limitations and determine the
locations for safes and other heavy equipment or items, which shall in all cases
be placed in the Building so as to distribute weight in a manner reasonably
acceptable to Landlord which may include the use of such supporting devices as
Landlord may reasonably require. All damages to the Building caused by the
installation or removal of any property of Tenant, or done by Tenant's property
while in the Building, shall be repaired at the expense of Tenant.
7. Nothing shall be swept or thrown into the corridors, halls, elevator
shafts or stairways. No birds or animals shall be brought into or kept in, on
or about Tenant's Premises. No portion of the Building shall at any time be
used or occupied as sleeping or lodging quarters.
8. Tenant shall cooperate with Landlord's employees in keeping the
Premises neat and clean.
9. Tenant shall not use or keep in the Building any flammable or explosive
fluid or substance (other than typical office supplies [e.g., photocopier toner]
used in compliance with all Laws).
10. Landlord will not be responsible for lost or stolen personal property,
money or jewelry from Tenant's Premises or public or common areas regardless of
whether such loss occurs when the area is locked against entry or not.
11. All vehicles are to be parked for business purposes having to do with
Tenant's business operated in the Premises, parked within designated parking
spaces, one vehicle to each space. No vehicle shall be parked as a "billboard"
vehicle in the parking lot. Any vehicle parked improperly may be towed away.
Tenant, Tenant's agents, employees, vendors and customers who do not operate or
park their vehicles as required shall subject the vehicle to being towed at the
expense of the owner or driver.
C-2
<PAGE>
EXHIBIT D
---------
TENANT FINISH-WORK: ALLOWANCE
-----------------------------
1. Except as set forth in this Exhibit, Tenant accepts the Premises in
their "AS-IS" condition on the date that this Lease is entered into. On or
before the Commencement Date, all Building HVAC and mechanical systems serving
the Premises shall be operable.
2. Tenant shall provide to Landlord for its approval final working
drawings, prepared by an architect that has been approved by Landlord (which
approval shall not unreasonably be withheld, delayed or conditioned), of all
alterations, improvements and installations that Tenant proposes to construct,
install and complete in the Premises; such working drawings shall include the
partition layout, ceiling plan, electrical outlets and switches, telephone
outlets, drawings for any modifications to the mechanical and plumbing systems
of the Building, and detailed plans and specifications for the construction of
the alterations, improvements and installations called for under this Exhibit in
accordance with all applicable governmental laws, codes, rules, and regulations.
If any of Tenant's proposed construction work will affect the Building's HVAC,
electrical, mechanical, or plumbing systems, then the working drawings
pertaining thereto must be approved by the Building's engineer of record.
Landlord's approval or disapproval, as the case may be, of the final working
drawings (inclusive of any approval required by the Building's engineer of
record) shall be completed within ten (10) days of Landlord's receipt of such
working drawings. If Landlord disapproves the final working drawings, Landlord
shall specify the reasons for such disapproval in writing to Tenant. Landlord's
(and the Building engineer's) approval of such working drawings shall not be
unreasonably withheld, delayed or conditioned, provided that (a) they comply
with all applicable laws, rules, and regulations, (b) such working drawings are
sufficiently detailed to allow construction of the alterations, improvements and
installations in a good and workmanlike manner, (c) the alterations,
improvements and installations depicted thereon conform to the reasonable rules
and regulations promulgated from time to time by Landlord for the construction
of tenant alterations, improvements and installations (a copy of which has been
delivered to Tenant), and (d) the alterations, improvements and installations do
not affect the Building's Structure or have any adverse effect on the Building's
HVAC, electrical, mechanical or plumbing systems. Within five (5) business days
of receiving any revision to such working drawings, Landlord shall advise Tenant
in writing of Landlord's approval or disapproval of such revisions and, in the
event of any full or partial disapproval, any changes reasonably requested by
Landlord. As used herein, "WORKING DRAWINGS" shall mean the final working
drawings approved by Landlord, as amended from time to time by any approved
changes thereto, and "WORK" shall mean all alterations, improvements and
installations to be constructed in accordance with and as indicated on the
Working Drawings. Landlord's approval of the Working Drawings shall not be a
representation or warranty of Landlord that such drawings are adequate for any
use or comply with any law, but shall merely be the consent of Landlord thereto.
Landlord shall, at Tenant's request, sign the Working Drawings to evidence its
review and approval thereof. All changes in the Work must receive the prior
written approval of Landlord (which approval shall not be withheld, delayed or
conditioned), and in the event of any such
D-1
<PAGE>
approved change Tenant shall, upon completion of the Work, furnish Landlord with
an accurate, reproducible "as-built" plan of the improvements as constructed.
3. The Work shall be performed only by contractors and subcontractors
approved in writing by Landlord, which approval shall not be unreasonably
withheld or delayed. All contractors and subcontractors shall be required to
procure and maintain insurance against such risks, in such amounts, and with
such companies as Landlord may reasonably require. Certificates of such
insurance, with paid receipts therefor, must be received by Landlord before the
Work is commenced. Promptly upon Landlord's approval of the Working Drawings
and delivery of the Premises to Tenant, Tenant shall commence the construction
of the Work and diligently and continuously pursue the completion of the same.
The Work shall be performed in a good and workmanlike manner free of defects,
shall conform with the Working Drawings, and shall be performed in such a manner
and at such times as not to interfere unreasonably with or delay Landlord's
other contractors and the operation of the Building. Tenant's construction
representative shall coordinate with Landlord's property manager for reasonable
access to the Premises during Tenant's construction of the Work.
4. The entire cost of performing the Work (including, without limitation,
design of the Work and preparation of the Working Drawings, costs of
construction, labor and materials, electrical usage during construction,
additional janitorial services, general tenant signage, related permitting,
taxes and insurance costs, all of which costs are herein collectively called the
"TOTAL CONSTRUCTION COSTS") in excess of the Construction Allowance (as
hereinafter defined) shall be paid by Tenant.
5. Landlord shall provide to Tenant a construction allowance (the
"CONSTRUCTION ALLOWANCE") equal to the lesser of (a) $828,480.00 or (b) the
Total Construction Costs, as adjusted for any approved changes to the Work.
6. Subject to the terms and conditions of this Lease, Landlord shall pay
the Construction Allowance to Tenant for the purpose of financing a portion of
the Total Construction Costs and the cost of designing, constructing, installing
and completing any additional improvements, alterations and installations in the
Premises within nine (9) months after the date of this Lease. As conditions to
Tenant's right to receive the Construction Allowance: (i) Tenant shall not be
in default under the Lease; (ii) the Lease shall be in full force and effect;
(iii) the portion of the Work covered by any application for payment shall, in
Landlord's reasonable discretion, have been substantially completed in
accordance with the Working Drawings and the provisions of this Lease; (iv)
Tenant shall furnish to Landlord: (A) if the entire Work is substantially
complete, a Certificate of Occupancy respecting the Premises; and (B) such
evidence as Landlord may reasonably require to evidence that all persons
furnishing or supplying labor and materials in connection with the construction
of the Work, or in the case of completion of a portion of the Work, have been
paid and that no lien exists of record with respect thereto; and (v) Tenant
shall not request any portion of the Construction Allowance more than once a
month. Landlord shall pay each requested portion of the Construction Allowance
within twenty (20) business days from Tenant's written request for the same
provided that Tenant has complied with the requirements set forth in the
preceding sentence. If, within nine (9) months after the date of
D-2
<PAGE>
this Lease, Landlord has not received applications for payment, together with
any other information reasonably requested by Landlord, from Tenant for the
entire Construction Allowance pursuant to the provisions of this Exhibit D, or
upon paying the full amount of the Construction Allowance to Tenant in
accordance with the provisions hereof, Landlord shall have no further obligation
to extend any credit to Tenant after disbursing all payments of the Construction
Allowance properly requested in applications for payment received by Landlord
before the end of such nine-month period provided Landlord has received all
other information it reasonably requested be provided by Tenant.
7. In consideration for Landlord's management and supervision of services
performed in connection with the Work, Tenant shall pay to Landlord, within ten
(10) business days after demand therefor, the actual costs incurred by Landlord
to review and approve the Working Drawings and/or any drafts and/or
modifications thereto and to review the construction of the Work.
D-3
<PAGE>
EXHIBIT E
---------
AMENDMENT NO. 1
---------------
This Amendment No. 1 (this "AMENDMENT") is executed as of_______, 199___
between W9/TIB Real Estate Limited Partnership, a Delaware limited partnership
("LANDLORD"), and Sycamore Networks, Inc., a Delaware corporation ("TENANT"),
for the purpose of amending the Lease Agreement between Landlord and Tenant
dated August __, 1999 (the "LEASE"). Capitalized terms used herein but not
defined shall be given the meanings assigned to them in the Lease.
AGREEMENTS
For valuable consideration, whose receipt and sufficiency are acknowledged,
Landlord and Tenant agree as follows:
1. CONDITION OF PREMISES. Tenant has accepted possession of the Premises
pursuant to the Lease. Any improvements required by the terms of the Lease to
be made by Landlord have been completed to the full and complete satisfaction of
Tenant in all respects except for the punchlist items described on Exhibit A
----------
hereto (the "PUNCHLIST ITEMS"), and except for such Punchlist Items, Landlord
has fulfilled all of its duties under the Lease with respect to such initial
tenant improvements. Furthermore, Tenant acknowledges that the Premises are
suitable for the Permitted Use.
2. COMMENCEMENT DATE. The Commencement Date of the Lease is___, 1999. If
the Commencement Date set forth in the Lease is different than the date set
forth in the preceding sentence, then the Commencement Date as contained in the
Lease is amended to be the Commencement Date set forth in the preceding
sentence.
3. EXPIRATION DATE. The Term is scheduled to expire on_______, 200_. If
the scheduled expiration date of the initial Term as set forth in the Lease is
different than the date set forth in the preceding sentence, then the scheduled
expiration date as set forth in the Lease is hereby amended to the expiration
date set forth in the preceding sentence.
4. CONTACT NUMBERS. Unless Landlord is otherwise notified by Tenant, (a)
Tenant's telephone number in the Premises is_____ and (b) Tenant's telecopy
number in the Premises is______ .
5. RATIFICATION. Each of Landlord and Tenant hereby ratifies and confirms
its respective obligations under the Lease. To the best of its knowledge,
Tenant represents and warrants to Landlord that it has no defenses thereto.
Additionally, Tenant further confirms and ratifies that, as of the date hereof,
the Lease is and remains in good standing and in full force and effect, and, to
the best of its knowledge, Tenant has no claims, counterclaims, set-offs or
defenses
E-1
<PAGE>
against Landlord arising out of the Lease or in any way relating
thereto or arising out of any other transaction between Landlord and Tenant,
except as set forth below:
6. BINDING EFFECT; GOVERNING LAW. Except as modified hereby, the Lease
shall remain in full effect and this Amendment shall be binding upon Landlord
and Tenant and their respective successors and assigns. If any inconsistency
exists or arises between the terms of this Amendment and the terms of the Lease,
the terms of this Amendment shall prevail. This Amendment shall be governed by
the laws of the State in which the Premises is located.
7. COUNTERPARTS. This Amendment may be executed in multiple counterparts,
each of which shall constitute an original, but all of which shall constitute
one document.
Executed as of the date first written above.
TENANT:
SYCAMORE NETWORKS, INC.,
a Delaware corporation
By:
----------------------------------
Name:
------------------------------
Title: President/Vice President
By:
-----------------------------------
Name:
------------------------------
Title: Treasurer/Assistant Treasurer
LANDLORD:
W9/TIB REAL ESTATE LIMITED
PARTNERSHIP, a Delaware limited partnership
By: W9/TIB Gen-Par, Inc., a Delaware
corporation, its general partner
By:
------------------------------------
Name:
-------------------------------
Title:
-------------------------------
E-2
<PAGE>
EXHIBIT A
---------
PUNCHLIST ITEMS
---------------
A-1
<PAGE>
EXHIBIT F
---------
FORM OF TENANT ESTOPPEL CERTIFICATE
-----------------------------------
The undersigned is the Tenant under the Lease (defined below) between
W9/TIB Real Estate Limited Partnership, a Delaware limited partnership, as
Landlord, and the undersigned as Tenant, for the building located at 4 Omni Way,
Chelmsford, Massachusetts, and hereby certifies as follows:
1. The Lease consists of the original Lease Agreement dated as of_______,
199___ between Tenant and Landlord ['s predecessor-in-interest] and the
following amendments or modifications thereto (if none, please state "none"):
The documents listed above are herein collectively referred to as the "LEASE"
and represent the entire agreement between the parties with respect to the
Premises. All capitalized terms used herein but not defined shall be given the
meaning assigned to them in the Lease.
2. The Lease is in full force and effect and has not been modified,
supplemented or amended in any way except as provided in Section 1 above.
3. The Term commenced on _______ , 1999 and the Term expires, excluding
any renewal options, on___________, 200__, and Tenant has no option to purchase
all or any part of the Premises or the Building or, except as expressly set
forth in the Lease, any option to terminate or cancel the Lease.
4. Tenant currently occupies the Premises described in the Lease and
Tenant has not transferred, assigned, or sublet any portion of the Premises nor
entered into any license or concession agreements with respect thereto except as
follows (if none, please state "none"):
5. All monthly installments of Basic Rent, all Additional Rent and all
monthly installments of estimated Additional Rent have been paid when due
through _______. The current monthly installment of Basic Rent is $________.
6. All conditions of the Lease to be performed by Landlord necessary to
the enforceability of the Lease have been satisfied and, to the best of Tenant's
knowledge, Landlord
F-1
<PAGE>
is not in default thereunder. In addition, Tenant has not delivered any notice
to Landlord regarding a default by Landlord thereunder, except as follows:
7. As of the date hereof, to the best of Tenant's knowledge, there are no
existing defenses or offsets against enforcement of the Lease, or, to the
undersigned's knowledge, claims or any basis for a claim, that the undersigned
has against Landlord, and no event has occurred and no condition exists, which,
with the giving of notice or the passage of time, or both, will constitute a
default under the Lease.
8. No rental has been paid more than thirty (30) days in advance and no
security deposit has been delivered to Landlord except as provided in the Lease.
9. Tenant is a duly formed and existing entity qualified to do business in
the state in which the Premises is located, and Tenant has full right and
authority to execute and deliver this Estoppel Certificate, and each person
signing on behalf of Tenant is authorized to do so, except as follows:
10. There are no actions pending against Tenant under any bankruptcy or
similar laws of the United States or any state.
11. Other than in compliance with all applicable laws and incidental to
the ordinary course of the use of the Premises, the undersigned has not used or
stored any hazardous substances in the Premises.
12. All tenant improvement work to be performed by Landlord under the
Lease has been completed in accordance with the Lease and has been accepted by
the undersigned, and all reimbursements and allowances due to the undersigned
under the Lease in connection with any tenant improvement work have been paid in
full, except as follows:
13. Tenant acknowledges that this Estoppel Certificate may be delivered to
Landlord, Landlord's Mortgagee or to a prospective mortgagee or prospective
purchaser, and their respective successors and assigns, and acknowledges that
Landlord, Landlord's Mortgagee and/or such prospective mortgagee or prospective
purchaser will be relying upon the statements contained herein in disbursing
loan advances or making a new loan or acquiring the property of which the
Premises are a part and that receipt by it of this certificate is a condition of
disbursing loan advances or making such loan or acquiring such property.
F-2
<PAGE>
Executed as of the date first written above.
TENANT:
SYCAMORE NETWORKS, INC.,
a Delaware corporation
By:
----------------------------------
Name:
------------------------------
Title: President/Vice President
By:
------------------------------------
Name:
-------------------------------
Title: Treasurer/Assistant Treasurer
F-3
<PAGE>
EXHIBIT G
---------
RENEWAL OPTION
--------------
Provided no Event of Default exists and Tenant is occupying the entire
Premises at the time of such election, Tenant shall have the option to extend
the Term of this Lease for one additional period of five (5) years, by
delivering written notice of the exercise thereof to Landlord not later than
twelve (12) months before the expiration of the Term. The Basic Rent payable
for each month during such extended Term shall be the "FAIR MARKET RENTAL RATE"
(determined as set forth below), at the commencement of such extended Term, for
extensions of leases of space of equivalent quality, condition, size, age,
utility and location, with the length of the extended Term and the credit
standing of Tenant to be taken into account. Within thirty (30) days after
receipt of Tenant's notice to extend but in any event not earlier than fourteen
(14) months prior to the commencement of the five-year extension term, Landlord
shall deliver to Tenant written notice of Landlord's determination of the Fair
Market Rental Rate and shall advise Tenant of the required adjustment to Basic
Rent, if any, and the other terms and conditions offered. Tenant shall, within
ten (10) days after receipt of Landlord's notice, notify Landlord in writing
whether Tenant accepts or rejects Landlord's determination of the Fair Market
Rental Rate. If Tenant timely notifies Landlord that Tenant accepts Landlord's
determination of the Fair Market Rental Rate (and failure of Tenant to notify
Landlord within the time period prescribed above shall be deemed acceptance) or
if, after a timely rejection by Tenant of such determination, the Fair Market
Rental Rate is determined according to the procedures set forth in this Exhibit
-------
G, then, on or before the commencement date of the extended Term, Landlord and
- -
Tenant shall execute an amendment to this Lease extending the Term on the same
terms provided in this Lease, except as follows:
(a) Basic Rent shall be adjusted to the Fair Market Rental Rate;
(b) Tenant shall have no further to extend the Term option unless
expressly granted by Landlord in writing; and
(c) Landlord shall lease to Tenant the Premises in their then-current
condition, and Landlord shall not provide to Tenant any allowances (e.g.,
---
moving allowance, construction allowance, and the like) or other tenant
inducements.
If Tenant rejects Landlord's determination of the Fair Market Rental Rate,
Tenant may, but only within ten (10) days after receipt of Landlord's notice,
require by written notice to Landlord that the determination of Fair Market
Rental Rates be made by brokers. In such event, within ten (10) days
thereafter, each party shall select a qualified commercial real estate broker
with at least ten (10) years experience in appraising property and buildings in
the city or submarket in which the Premises are located. The two brokers shall
give their opinion of Fair Market Rental Rates within ten (10) days after their
retention. In the event the opinions of the two brokers differ and, after good
faith efforts over the succeeding ten (10) day period, they cannot mutually
agree, the brokers shall immediately and jointly appoint a third broker with the
qualifications specified above. This
G-1
<PAGE>
third broker shall immediately (within five (5) days) choose either the
determination of Landlord's broker or Tenant's broker and such choice of this
third broker shall be final and binding on Landlord and Tenant. Each party shall
pay its own costs for its real estate broker. The parties shall equally share
the costs of any third broker. The parties shall immediately confirm the renewal
term, Basic Rent and the other terms and conditions so determined, in writing.
Tenant's rights under this Exhibit shall terminate if (1) this Lease or
Tenant's right to possession of the Premises is terminated, (2) Tenant assigns
any of its interest in this Lease or sublets any portion of the Premises to any
person other than to a Permitted Transferee, (3) Tenant fails to timely exercise
its option under this Exhibit, time being of the essence with respect to
Tenant's exercise thereof, or (4) Tenant's Tangible Net Worth is less than
$25,000,000.00.
G-2
<PAGE>
EXHIBIT H
---------
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
-------------------------------------------------------
This AGREEMENT is made and entered into as of ___________________, 1999,
by and among LaSalle National Bank, as Trustee for GS Mortgage Securities
Corporation II Commercial Mortgage Pass-Through Certificates, Series 1998-GSFL1
("Lender"), W9/TIB Real Estate Limited Partnership, a Delaware limited
partnership ("Landlord"), and Sycamore Networks, Inc., a Delaware corporation
("Tenant").
1. RECITALS.
--------
1.1 Mortgage. Lender is the holder of a Promissory Note dated
--------
________________, 19____, in the original principal amount of $_________________
of Landlord, which is secured, inter alia, by a Mortgage and Security Agreement
(the "Mortgage") and Assignment of Lease and Rents (the "Lease Assignment"),
both dated ____________, and recorded with the Middlesex South Registry of Deeds
at Book _____, Pages _____ and _____, respectively, covering premises more
particularly described in the Mortgage (the "Premises").
1.2 Lease. Landlord and Tenant entered into a Lease dated August __,
-----
1999 (the "Lease"), whereby Landlord demised to Tenant the Premises.
2. CONSIDERATION. The terms of the Lease constitute a material inducement
to Lender's consent thereto and entering into and performing this Agreement.
3. SUBORDINATION OF THE LEASE. Subject to the terms of this Agreement,
this Lease shall be and is hereby made subject and subordinate to the Mortgage.
4. NON-DISTURBANCE. Lender shall not, in the exercise of any right,
remedy, or privilege granted by the Mortgage or the Lease Assignment, or
otherwise available to Lender at law or in equity, disturb Tenant's possession
under the Lease so long as:
(a) Tenant is not in default under any provision of the Lease or this
Agreement beyond any applicable notice and/or cure periods at the time Lender
exercises any such right, remedy or privilege; and
(b) The Lease at that time is in force and effect according to its original
terms, or with such amendments or modifications as Lender shall have approved,
if such approval is required by the terms of the Mortgage or the Lease
Assignment; and
(c) Tenant thereafter continues to fully and punctually perform all of its
obligations under the Lease without default thereunder beyond any applicable
cure period; and
H-1
<PAGE>
(d) Tenant attorns to or at the direction of Lender, as provided in
Paragraph 5. Without limiting the foregoing, and so long as the foregoing
conditions are met, Lender agrees that (i) Tenant will not be named as a party
to any foreclosure or other proceeding instituted by Lender to enforce the terms
of the Mortgage or the Lease Assignment; (ii) any sale or other transfer of the
Premises or of the Landlord's interest in the Lease, pursuant to foreclosure or
any voluntary conveyance or other proceeding in lieu of foreclosure, will be
subject and subordinate to Tenant's possession under the Lease; and (iii) the
Lease will continue in force and effect according to its original terms, or with
such amendments as Lender shall have approved, if such approval is required by
the terms and conditions of the Mortgage or the Lease Assignment.
5. ATTORNMENT. Tenant shall attorn to Lender, to any receiver or similar
----------
official for the Premises appointed at the instance and request, or with the
consent, of Lender and to any person who acquires the Premises, or the
Landlord's interest in the Lease, or both, pursuant to Lender's exercise of any
right, remedy or privilege granted by the Mortgage, or otherwise at law or in
equity. Without limitation, Tenant shall attorn to any person or entity that
acquired the Premises pursuant to foreclosure of the Mortgage, or by any
proceeding or voluntary conveyance in lieu of such foreclosure, or from Lender,
whether by sale, exchange or otherwise. Any such attornment shall be
conditioned upon Lender or any such person, entity, receiver or other official
complying with the provisions of the next succeeding paragraph.
Upon any attornment under this Paragraph 5, the Lease shall continue in
full force and effect as a direct lease between Tenant and the person, entity,
receiver or other official to whom Tenant attorns, except that such person,
entity, receiver or other official shall not be:
(i) liable for any breach, act or omission of any prior landlord; or
(ii) subject to any offsets, claims or defenses which Tenant might have
against any prior landlord; or
(iii) bound by any rent or additional rent or other payment in lieu of
rent which Tenant might have paid to any prior landlord more than 30 days in
advance of its due date under the Lease or which such person or entity has
physical possession of; or
(iv) bound by any amendment or modification of the Lease made without
Lender's written consent, where such consent is required by the Mortgage; or
(v) bound by any notice given by Tenant to Landlord, whether or not such
notice is given pursuant to the terms of the Lease, unless a copy thereof was
then also given to Lender; or
(vi) liable for any security deposit or other sums held by any prior
landlord, unless actually received.
H-2
<PAGE>
The person or entity to whom Tenant attorns shall be liable to Tenant under the
Lease only during such person or entity's period of ownership, and such
liability shall not continue or survive as to the transferor after a transfer by
such person or entity of its interest in the Lease and the Premises.
6. REPRESENTATIONS AND WARRANTIES.
------------------------------
6.1 Landlord and Tenant each hereby represent and warrant to Lender
as follows regarding the Lease:
(a) A true and correct copy of the Lease (inclusive of all riders and
exhibits thereto) is attached to the counterpart of this Agreement being
delivered to Lender. There are no other oral or written agreements,
understandings or the like between Landlord and Tenant relating to the Premises
or the Lease transaction.
(b) The term of the Lease is expected to commence on or about
_____________, 1999.
(c) Under the Lease, Tenant shall be obligated to pay rent without present
right of defense or offset, at the rate of $79,396.00 per month for the first 24
months and $86,300.00 per month for the next 36 months of the Lease term. Rent
is paid through and including N/A, 19__. No rent has been paid more than 30
days in advance, and Tenant has no claim against the Landlord for any deposits
or other sums.
(d) The Lease has not been modified, altered or amended in any respect.
(e) All of the improvements by Landlord contemplated by the Lease have been
entirely completed as required therein.
(f) The addresses for notices to be sent to Tenant and Landlord are as set
forth in the Lease.
(g) To Tenant's knowledge, Tenant has no right of first refusal, option or
other right to purchase the Premises or any part thereof, including, without
limitation, the Demised Premises.
6.2 Several. Landlord and Tenant severally represent and warrant to
-------
Lender with respect to themselves, but not with respect to the other:
(a) The execution of the Lease was duly authorized, the Lease was properly
executed and is in full force and effect and is valid, binding and enforceable
against Tenant and Landlord and there exists no monetary default or, to the best
of their knowledge, no non-monetary default, nor state of facts which with
notice, the passage of time, or both, could ripen into a default, on the part of
either Tenant or Landlord.
(b) There has not been filed by or against nor, to the best of the
knowledge and belief of the representing party, is there threatened against or
contemplated by, Landlord or Tenant, a
H-3
<PAGE>
petition in bankruptcy, voluntary or otherwise, any assignment for the benefit
of creditors, any petition seeking reorganization or arrangement under the
bankruptcy laws of the United States or of any state thereof, or any other
action brought under said bankruptcy laws.
(c) There has not been any assignment, hypothecation or pledge of the Lease
or rents accruing under the Lease, other than pursuant to the Mortgage and the
Lease Assignment. Tenant makes the representation set forth in this
subparagraph only to its best knowledge and belief.
7. RENTS. Landlord and Tenant jointly and severally acknowledge that the
-----
Lease Assignment provides for the direct payment to Lender of all rents and
other monies due and to become due to Landlord under the Lease upon the
occurrence of certain conditions as set forth in the Lease Assignment without
Lender's taking possession of the Demised Premises or otherwise assuming
Landlord's position or any of Landlord's obligations under the Lease. Upon
receipt from Lender of written notice to pay all such rents and other monies to
or at the direction of Lender, Landlord authorizes and directs Tenant thereafter
to make all such payments to or at the direction of Lender, releases Tenant of
any and all liability to Landlord for any and all payment so made, and shall
defend, indemnify and hold Tenant harmless from and against any and all claims,
demands, losses, or liabilities asserted by, through or under Landlord (except
by Lender) for any and all payments so made. Upon receipt of such notice,
Tenant thereafter shall pay all monies then due and becoming due from Tenant
under the Lease to or at the direction of Lender, notwithstanding any provision
of the Lease to the contrary. Tenant agrees that neither Lender's demanding or
receiving any such payments, nor Lender's exercising any other right, remedy,
privilege, power or immunity granted by the Mortgage or the Lease Assignment,
will operate to impose any liability upon Lender for performance of any
obligation of Landlord under the Lease, except as set forth in Paragraph 5 of
this Agreement and except as Lender elects otherwise in writing. Such payments
shall continue until Lender directs Tenant otherwise in writing.
Tenant agrees not to pay any rent under the Lease more than 30 days in
advance without Lender's consent. The provisions of this Paragraph 7 will apply
from time to time throughout the term of the Lease.
8. CURE. If Tenant becomes entitled to terminate the Lease or offset,
----
withhold or abate rents because of any default by Landlord, then Tenant shall
give Lender written notice specifying Landlord's default. Lender then shall
have the right, but not the obligation, to cure the specified default within the
following time periods:
(a) Fifteen days after receipt of such notice with respect to defaults that
can be cured by the payment of money; or
(b) Thirty days after receipt of such notice with respect to any other
default; unless the cure requires Lender to obtain possession of the Demised
Premises, in which case such thirty day period shall not commence until Lender
acquires possession, so long as Lender proceeds promptly to acquire possession
of the Demised Premises with due diligence, by foreclosure of the Mortgage or
otherwise.
H-4
<PAGE>
Nothing contained in this Paragraph 8 shall require Lender to commence or
continue any foreclosure or other proceedings, or, if Lender acquires possession
of the Demised Premises, to continue such possession, if all defaults specified
by Tenant in its notice are cured. Possession by a receiver, or other similar
official appointed at the instance, or with the consent, of Lender shall
constitute possession by Lender for all purposes under this Paragraph 8.
9. ESTOPPEL LETTERS. Whenever reasonably requested by Lender, Landlord
----------------
and Tenant from time to time shall severally execute and deliver to or at the
direction of Lender, and without charge to Lender, one or more written
certifications of all of the matters as set forth in Paragraph 6, whether Tenant
has exercised any renewal option or options and any other factual information
the Lender may reasonably require to confirm the current status of the Lease,
including, without limitation, a confirmation that the Lease is and remains
subordinated as provided in this Agreement.
10. CASUALTY AND EMINENT DOMAIN. Landlord and Tenant jointly and
---------------------------
severally agree that the Mortgage permits Lender, at its option, to apply to the
indebtedness from time to time secured by the Mortgage any and all insurance
proceeds payable with respect to any casualty loss at the Demised Premises and
any and all awards or other compensation that may be payable for the
condemnation of all or any portion of the Demised Premises, or any interest
therein, or by way of negotiated settlement or conveyance in lieu of
condemnation; and Landlord and Tenant jointly and severally consent to any such
application by Lender. Notwithstanding the foregoing, Landlord and Lender agree
that any and all insurance or condemnation proceeds payable with respect to
Tenant's property or the interruption or relocation of Tenant's business (except
for rental loss insurance proceeds) will be paid to Tenant, so long as they do
not reduce the proceeds otherwise payable to Lender.
11. NOTICES. All notices, demands, and other communications that must or
-------
may be given or made in connection with this Agreement must be in writing and,
unless receipt is expressly required, will be deemed delivered or made 5 days
after having been mailed by registered or certified mail, return receipt
requested, or by express mail, in any event with sufficient postage affixed, and
addressed to the parties as follows:
TO LENDER: c/o AMRESCO Services, L.P.
235 Peachtree Street, N.E., Suite 900
Atlanta, Georgia 30303
Attn: Private Sector Servicing
TO LANDLORD: W9/TIB Real Estate Limited Partnership
c/o Archon Group, L.P.
1275 K Street NW, Suite 900
Washington, DC 20005
H-5
<PAGE>
TO TENANT: Prior to Commencement Date: Following the
-------------------------- -------------
Commencement Date:
-----------------
Sycamore Networks, Inc. Sycamore Networks, Inc.
10 Elizabeth Drive 4 Omni Way
Chelmsford, MA 01824-4111 Chelmsford, MA 01824-4111
Attn: Mr. Peter Hamel Attn: Corporate Counsel
and a copy at all times to:
Testa, Hurwitz & Thibeault, LLP
125 High Street
Boston, MA 02110
Attn: Real Estate Department
Such addresses may be changed by notice pursuant to this Paragraph 11; but
notice of change of address is effective only upon receipt. Tenant will furnish
Lender with copies of all notices from Tenant to Landlord claiming a default by
Landlord under the Lease, and Landlord will furnish Lender with copies of all
notices from Landlord to Tenant claiming a default by Tenant under the Lease.
All communications to Lender shall reference "AMRESCO Loan No.: __________".
12. SUCCESSORS AND ASSIGNS. As used in this Agreement, the word "Tenant"
----------------------
shall mean Tenant and any subsequent holder or holders of an interest under the
Lease, as the text may require, provided that the interest of such holder is
acquired in accordance with the terms and provisions of the Lease and the word
"Lender" shall mean Lender or any other subsequent holder or holders of the
Mortgage or any party acquiring title to the Premises or Landlord's interest in
the Lease by purchase at a foreclosure sale, by deed of the Lender, or
otherwise. Subject to the foregoing, this Agreement shall bind and inure to the
benefit of Landlord, Tenant and Lender, their legal representatives, successors
and assigns. The terms Lease, Mortgage and Lease Assignment shall include any
and all amendments, modifications, replacements, substitutions, extensions,
renewals and supplements thereto.
13. FURTHER ASSURANCES. Landlord and Tenant from time to time shall
------------------
execute and deliver at Lender's request all instruments that may be necessary or
appropriate to evidence their agreement hereunder provided such instrument
neither increases Tenant's obligations or decreases its rights under the Lease
or this Agreement.
14. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original and all such
counterparts shall constitute one and the same instrument.
15. SEVERABILITY. A determination that any provision of this Agreement is
------------
unenforceable or invalid shall not affect the enforceability or validity of any
other provision, and any determination that the application of any provision of
this Agreement to any person or to any
H-6
<PAGE>
person or to particular circumstances is illegal or unenforceable shall not
affect the enforceability or validity of such provision as it may apply to other
persons or circumstances.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
LENDER:
LASALLE NATIONAL BANK, as Trustee for GS Mortgage Securities Corporation II
Commercial Mortgage Pass-Through Certificates, Series 1998-GSFL1
By: AMRESCO Services, L.P.,
its authorized agent
By: AMRESCO Mortgage Capital, Inc.,
its general partner
By:
----------------------------
Name:
------------------------
Title: Servicing Officer
LANDLORD:
W9/TIB REAL ESTATE LIMITED
PARTNERSHIP, a Delaware limited partnership
By: W9/TIB Gen-Par, Inc., a Delaware
corporation, its general partner
By:
------------------------------
Name:
--------------------------
Title:
-------------------------
TENANT:
SYCAMORE NETWORKS, INC., a Delaware corporation
By:
---------------------------------
Name:
-----------------------------
Title: President/Vice President
By:
---------------------------------
Name:
-----------------------------
Title: Treasurer/Assistant Treasurer
H-7
<PAGE>
STATE OF ____________ )
)
COUNTY OF __________ ) _____________ ___, 1999
Then personally appeared the above-named _________________________________,
__________________________________ of AMRESCO Mortgage Capital, Inc., as general
partner of AMRESCO Services, L.P., as authorized agent for LaSalle National
Bank, as Trustee for GS Mortgage Securities Corporation II Commercial Mortgage
Pass-Through Certificates, Series 1998-GSFL1, and acknowledged the foregoing
instrument to be his/her free act and deed and the free act and deed of AMRESCO
Mortgage Capital, Inc., AMRESCO Services, L.P. and LaSalle National Bank, before
me,
____________________________________
(Seal)
Notary Public
My commission expires:
STATE OF ____________ )
)
COUNTY OF __________ ) _____________ ___, 1999
Then personally appeared the above-named _________________________________,
__________________________________ of W9/TIB Gen-Par, Inc., as General Partner
of W9/TIB Real Estate Limited Partnership, and acknowledged the foregoing
instrument to be his/her free act and deed, the free act and deed of W9/TIB Gen-
Par, Inc., and the free act and deed of W9/TIB Real Estate Limited Partnership,
before me,
____________________________________
(Seal)
Notary Public
My commission expires:
STATE OF ____________ )
)
COUNTY OF __________ ) _____________ ___, 1999
Then personally appeared the above-named _________________________________,
__________________________________ of Sycamore Networks, Inc., and acknowledged
the foregoing instrument to be his/her free act and deed and the free act and
deed of Sycamore Networks, Inc., before me,
____________________________________
(Seal)
Notary Public
My commission expires:
H-8
<PAGE>
EXHIBIT I
---------
SAMPLE LETTER OF CREDIT
-----------------------
Beneficiary/Landlord: Issuance Date:
W9/TIB Real Estate Limited Partnership, ______________________, 1999
a Delaware limited partnership
c/o Archon Group, L.P. Irrevocable Standby Letter
1275 K Street NW, Suite 900 of Credit No. _______________
Washington, DC 20005
Applicant/Accountee/Tenant: Credit Amount:
Sycamore Networks, Inc., USD $500,000.00
a Delaware corporation Up to an Aggregate Thereof
4 Omni Way Date and Place of Expiry:
Chelmsford, MA 01824-4111 _______________, 1999
At Our Counters in Boston, MA
Ladies and Gentlemen:
We hereby issue our irrevocable standby letter of credit in your favor for
the account of the Applicant for an aggregate amount not to exceed FIVE HUNDRED
THOUSAND U.S. DOLLARS available for payment by presentation of your draft(s)
drawn on ourselves at sight, and accompanied by the following documents:
1. Your statement/certificate, on your letterhead, signed by a person
purporting to be your authorized officer/representative, appropriately completed
in the following form:
A. "The undersigned, an authorized officer/representative of W9/TIB Gen-
Par, Inc., general partner of W9/TIB Real Estate Limited Partnership (the
"Landlord"), hereby certifies with regard to __________ Irrevocable Standby
Letter of Credit no. __________ that Sycamore Networks, Inc. (the "Tenant") is
in default relative to the Lease Agreement dated August _____, 1999 (the
"Lease") by and between Landlord and Tenant and such default has continued
uncured beyond all applicable notice and grace periods."
OR
B. "We are in receipt of _______________ Notice of Non-Extension of its
letter of credit no. _______________ and Sycamore Networks, Inc. (the "Tenant")
has failed to provide a replacement letter of credit reasonably acceptable to us
as of the date of our drawing and the Tenant remains liable to us pursuant to
the Lease."
2. The original of this letter of credit (for endorsement of drawing),
which will be returned unless the credit is fully utilized.
I-1
<PAGE>
Partial drawings are permitted.
We engage with you that all draft(s) drawn under and in compliance with the
terms and conditions of this letter of credit shall be duly honored on
presentation to us at our office at _______________, Boston, MA _______, Attn:
_______________, ____ Floor, on or before the Expiry Date as specified above or
any automatically extended date herein before set forth. Draft(s) must indicate
the name of the issuing bank, the letter of credit number and must be presented
at the office specified in the preceding sentence.
It is a condition of this letter of credit that it shall be deemed
automatically extended without amendment for an additional period of one year
from the present or each future expiration date hereof, but not beyond
_________________ [NOTE: 30 DAYS AFTER THE EXPIRATION OF THE TERM], unless at
least forty-five (45) days prior to any such expiration date we notify you by
certified mail, that we elect not to so extend this letter of credit for any
such additional period. Upon receipt by you of such notice, you may draw
hereunder your draft(s) at sight on ourselves for the then full amount of this
letter of credit accompanied by your statement as specified above.
This letter of credit is transferable in its entirety, but not in part, to
any successor landlord under the Lease and may be successively transferred. If
it is your intention to transfer your interest hereunder, kindly return the
letter of credit to us for appropriate endorsement and furnish us with your
instructions. Please note your signature on your request for transfer must be
authenticated by your bank. (Transfer form is attached.) In the event of
transfer all required documents are to be signed by the transferee.
This letter of credit sets forth in full the terms of our obligations to
you, and our undertaking shall not in any way be amended or amplified by
reference to any documents, instruments or any agreement referred to herein or
to which this letter of credit related, and such reference, if any, shall not be
deemed to incorporate herein by reference any document, instrument or agreement.
Except as otherwise expressly stated herein, this letter of credit is
subject to the International Standby Practices (ISP98), the International
Chamber of Commerce, Publication No. 590, and shall, as to matters not governed
by ISP98, be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts.
Very truly yours,
By:_______________________________
Name:
Title:
I-2
<PAGE>
TRANSFER
This form is to be used where a Letter of Credit is transferred
in its entirety and no substitution of invoices is involved.
Date
Re: Credit issued or advised by
-----------------------------
Gentlemen:
For value received, the undersigned beneficiary hereby irrevocably transfers to:
----------------------------------------
(Name of Second Beneficiary)
----------------------------------------
(Address)
----------------------------------------
(Name of Advising Bank)
----------------------------------------
(Address)
all rights of the undersigned beneficiary to draw under the above Letter of
Credit in its entirety.
1. By this transfer, all rights of the undersigned beneficiary in such
Letter of Credit are transferred to the Second Beneficiary and the Second
Beneficiary shall have the sole rights as beneficiary thereof, including sole
rights relating to any amendment, whether increases or extensions or other
amendments and whether now existing or hereafter made. All amendments are to be
advised direct to the Second Beneficiary without necessity of any consent of or
notice to the undersigned beneficiary.
2. The advice of such Letter of Credit is returned herewith, and we ask you to
endorse the transfer on the reverse thereof, and forward it direct to the Second
Beneficiary with your customary notice of transfer, or advise the letter of
credit to the Second Beneficiary by telex/SWIFT.
SIGNATURE AUTHENTICATED Very truly yours,
(Bank)
By:________________________________
(Authorized Signature) Name:
I-3
<PAGE>
Exhibit 24.2
POWER OF ATTORNEY
The undersigned director of Sycamore Networks, Inc. hereby constitutes and
appoint Gururaj Deshpande, Daniel E. Smith and Frances M. Jewels, and each of
them singly, my true and lawful attorneys with full power to them, and each of
them singly, with full powers of substitution and resubstitution, to sign for me
and in my name in the capacity indicated below, the Registration Statement on
Form S-1 (file no. 333-84635) 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 my name and on my behalf in my capacity as
director 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 my signature as it may be
signed by my 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).
Signed this 24th day of September, 1999.
/s/ John W. Gerdelman
--------------------------
John W. Gerdelman
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