<PAGE>
As filed with the Securities and Exchange Commission on February 17, 2000
Registration No. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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SYCAMORE NETWORKS, INC.
(Exact name of registrant as specified in its charter)
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Delaware 3576 04-3410558
(State or 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
Telephone (978) 250-2900
(Name, Address Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
--------------
Copies to:
MARGARET A. BROWN, ESQ. FRANCES M. JEWELS, ESQ. WILLIAM B. ASHER, JR.,
SKADDEN, ARPS, SLATE, VICE PRESIDENT AND ESQ.
MEAGHER & FLOM LLP CHIEF FINANCIAL OFFICER TESTA, HURWITZ &
One Beacon Street Sycamore Networks, Inc. THIBEAULT, LLP
Boston, MA 02108-3194 10 Elizabeth Drive 125 High Street
Telephone: (617) 573-4800 Chelmsford, MA 01824 Boston, MA 02110
Telephone: (617) 248-7000
Telephone: (978) 250-2900
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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 of
1933, 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 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(d)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Proposed Maximum
Amount Maximum Aggregate Amount of
Title of Each Class of To Be Offering Price Offering Registration
Securities To Be Registered Registered Per Unit Price(1) Fee
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<S> <C> <C> <C> <C>
Common stock, $.001 par value
per share 17,250,000 $109(2) $1,880,250,000 $496,386
</TABLE>
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(1) Includes 2,250,000 shares of common stock which the underwriters have the
option to purchase from the Company solely to cover over-allotments, if
any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(c) of the Securities Act of 1933, as
amended, and based upon the average high and low prices on February 15,
2000, as reported on the Nasdaq National Market.
--------------
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 preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell nor does it seek an offer to +
+buy these securitiesin any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to completion)
Issued February 17, 2000
15,000,000 Shares
[LOGO OF SYCAMORE NETWORK]
COMMON STOCK
-----------
Sycamore Networks, Inc. is offering 12,394,707 shares and the selling
stockholders are offering 2,605,293 shares.
-----------
Our common stock is listed on the Nasdaq National Market under the symbol
"SCMR." On , 2000, the last reported sale price of the common stock was $
per share.
-----------
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 6.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
Initial Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions Sycamore Stockholders
-------- ------------- ----------- ------------
<S> <C> <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 has granted the underwriters the right to purchase up to an
additional 2,250,000 shares to cover over-allotments. Morgan Stanley & Co.
Incorporated expects to deliver the shares to purchasers on , 2000.
-----------
MORGAN STANLEY DEAN WITTER
CREDIT SUISSE FIRST BOSTON
LEHMAN BROTHERS
J.P. MORGAN & CO.
DAIN RAUSCHER WESSELS
ROBERTSON STEPHENS
THOMAS WEISEL PARTNERS LLC
, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Page
---- ----
<S> <C> <C> <C>
Prospectus Summary.................. 3 Business............................ 29
Risk Factors........................ 6 Management.......................... 39
Special Note Regarding Forward- Certain Transactions................ 47
Looking Statements................. 16 Principal and Selling Stockholders.. 49
Use of Proceeds..................... 17 Description of Capital Stock........ 51
Price Range of Common Stock......... 17 Shares Eligible for Future Sale..... 53
Dividend Policy..................... 17 Underwriters........................ 56
Capitalization...................... 18 Legal Matters....................... 57
Dilution............................ 19 Experts............................. 57
Selected Consolidated Financial Where You Can Find More
Data............................... 20 Information........................ 58
Management's Discussion and Analysis Index to Consolidated Financial
of Financial Condition and Results Statements......................... F-1
of Operations...................... 21
</TABLE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
which is contained in this prospectus. We and the selling stockholders 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.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified by the more detailed information and the
consolidated financial statements and related notes appearing elsewhere in this
prospectus.
SYCAMORE NETWORKS, INC.
We develop and market products that transport voice and data traffic over
wavelengths of light. Our products are designed to enable our customers to
quickly and cost effectively create usable network capacity over existing fiber
and thereby to create new high speed data services. Our target customers are
new and established providers of local voice and data transport services, long
distance carriers, Internet service providers, cable operators, foreign
telephone companies and carriers who provide services to other carriers, all of
which we refer to as service providers. These companies may provide such high
speed data services as access to the Internet, high speed data connections
between company sites, video conferencing and remote access to corporate
databases. We believe that the existing public network is unable to meet the
demand for high speed data transport services that are driving network growth.
As data traffic on the public network continues to grow at rates that surpass
available network capacity, we believe that service providers will require new
solutions to relieve network congestion and create new data services.
We call our products intelligent optical networking products because they
are designed to transmit and manage data directly on wavelengths of light, for
transmission over fiber optic cable. This will improve the efficiency of the
network, because data can be moved across the network and managed entirely in
the optical medium. In contrast, the existing public network is based on a
transmission technology, known as SONET/SDH, which requires optical signals
travelling across the network to be converted into electrical signals at each
network transit point, and then re-converted into optical signals for transport
to the next transit point. The multiple conversions required in a SONET/SDH
network increase network complexity and cost. Our products are based on a
common software architecture that we believe has a number of significant
benefits, including accelerating our release of new products and enabling our
customers to upgrade their networks without significant new capital equipment
or retraining.
Prior to May 1999, we were a development stage company principally engaged
in research and development. We shipped our SN 6000 Intelligent Optical
Transport product in May 1999, our SN 8000 Intelligent Optical Node in August
1999 and our SilvxManager Network Management System in November 1999. Our SN
16000 Intelligent Optical Switch is currently in the test stage. Substantially
all of our revenues to date have been from sales of these products to one
customer, Williams Communications. We have incurred significant losses since
our inception, and as of January 29, 2000 we had an accumulated deficit of
$27.5 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 of, 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.
3
<PAGE>
. 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 are currently
developing 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.
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,
SilvxONMS and SILVX are our trademarks. This prospectus also contains
trademarks of other companies.
THE OFFERING
<TABLE>
<C> <S>
Common stock offered by Sycamore Networks........... 12,394,707 shares
Common stock offered by the selling stockholders.... 2,605,293 shares
Common stock to be outstanding after this offering.. 248,489,559 shares
Use of proceeds..................................... We intend to use the net
proceeds from this
offering for general
corporate purposes,
principally working
capital and capital
expenditures. See "Use of
Proceeds."
Nasdaq National Market symbol....................... "SCMR"
</TABLE>
The above information is based upon the number of shares of common stock
outstanding as of January 29, 2000, giving effect to a 3-for-1 stock split
effected on February 11, 2000, and excludes 17,849,484 shares of common stock
issuable upon exercise of outstanding options at an average exercise price of
$19.37 per share and 43,292,112 shares of common stock reserved for future
issuance under our stock plans as of January 29, 2000.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
Period from Inception Six Months Ended
(February 17, 1998) Year Ended ---------------------------------
through July 31, 1998 July 31, 1999 January 30, 1999 January 29, 2000
--------------------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues................ $ -- $ 11,330 $ -- $ 48,559
Total operating
expenses............... 793 22,893 4,243 34,679
Loss from operations.... (793) (20,049) (4,482) (11,856)
Net loss................ (693) (19,490) (4,289) (7,351)
Pro forma basic and
diluted net loss per
share (unaudited)...... $ (.01) $ (.17) $ (.05) $ (.04)
Weighted average shares
used in computing pro
forma basic and diluted
net loss per share
(unaudited)............ 56,268 114,435 87,655 172,244
</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 totaled 15,768,000 and 36,261,000 for the period from
inception (February 17, 1998) through July 31, 1998 and year ended July 31,
1999, respectively; and 29,952,000 and 53,218,000 for the six months ended
January 30, 1999 and January 29, 2000, respectively.
The as adjusted column in the consolidated balance sheet data below gives
effect to the sale by us of 12,394,707 shares of common stock in this offering
at an assumed public offering price of $ , after deducting the underwriting
discounts and commissions and estimated offering expenses payable by us.
<TABLE>
<CAPTION>
As of January 29,
2000
--------------------
Actual As Adjusted
-------- -----------
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and marketable securities........... $288,576 $
Working capital............................................ 292,043
Total assets............................................... 344,678
Total stockholders' equity................................. 307,180
</TABLE>
Except as set forth in the consolidated financial statements or as otherwise
indicated, all information in this prospectus:
. assumes no exercise of the underwriters' over-allotment option; and
. reflects a 3-for-1 stock split of the common stock effected on February
11, 2000.
5
<PAGE>
RISK FACTORS
This offering and an investment in our common stock involve a high degree
of risk. You should consider carefully the risks described below before you
decide to buy our common stock.
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 a limited number of customers, one of whom, Williams
Communications, accounts for substantially all of our revenues to date.
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. 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 financial
condition or results of our operations.
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. We shipped our SN 6000 Intelligent
Optical Transport product in May 1999, our SN 8000 Intelligent Optical Node in
August 1999 and our SilvxManager Network Management System in November 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 January 29, 2000, we had an accumulated
deficit of $27.5 million. We have not achieved profitability on a quarterly or
annual basis and anticipate that we will continue to incur net losses. We
cannot assure you 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, SN 8000 Intelligent Optical Network Node and our
SilvxManager Network Management System are the only products that have been
shipped to customers. Our newest product is the SN 16000 Intelligent Optical
Switch. This product is currently in the test stage. 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.
6
<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. 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 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 May Not Be Successful If Our Customer Base Does Not Grow
Our future success will depend on our attracting additional customers. 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.
7
<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
assure you 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 Lucent
Technologies, Nortel Networks, Cisco Systems and Ciena Corporation. In
addition, a number of private companies have announced plans for new products
to address the same network problems which our products address. Many of our
current and potential competitors have significantly greater selling and
marketing, technical, manufacturing, financial, and other resources, including
8
<PAGE>
vendor-sponsored financing programs. Moreover, our competitors may foresee the
course of market developments more accurately 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 have
limited ability to provide vendor-sponsored financing and this may influence
the purchasing decisions of prospective customers, who may decide to purchase
products from one of our competitors who are able to provide more extensive
financing programs.
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
and train 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 expand our 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 our personnel 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 do not have internal manufacturing capabilities. 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. We
9
<PAGE>
recently executed a supply contract with Celestica Corporation, which provides
comprehensive manufacturing services, including assembly, test, control and
shipment to our customers, and procures material on our behalf. We may not be
able to effectively manage our relationship with Celestica, and Celestica may
not meet our future requirements for timely delivery. Each of our contract
manufacturers also builds products for other companies, and we cannot assure
you 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. Except for our contract with
Celestica, we do not have any on-going supply contracts with these
manufacturers. At present, we purchase products from these manufacturers on a
purchase order basis. 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 And Other
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. Further,
the optical component industry is expanding rapidly and manufacturers of
optical components may be unable to meet the unpredictable and growing demand
for components. Because optical components are integrated into our products, a
shortage or decrease in supply would seriously impact 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.
10
<PAGE>
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 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 could
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 specifically
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 would have to 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
11
<PAGE>
needs of our customers. Our failure to establish and maintain these customer
relationships may adversely affect our ability to develop new products and
product enhancements. In addition, we may experience delays in releasing new
products and product enhancements in the future. Material delays in
introducing new products and enhancements or our inability to introduce
competitive new products may cause customers to forego purchases of our
products and purchase those of our competitors, which could seriously harm our
business.
Our Failure To Continually 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 July 31, 1999, we had a total of 148 employees
and at January 29, 2000, we had a total of 277 employees. In addition, we plan
to continue to hire a significant number of employees this fiscal 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 or other claims relating to our employees 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 or our employees from such claims could divert the
attention of our management away from our operations.
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.
12
<PAGE>
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 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 continue to expand our sales into international markets. This
expansion will require significant management attention and financial
resources to develop successfully direct and indirect international sales and
support channels and to support customers in international markets. We may not
be able to develop international market demand for our products.
We have limited experience in marketing, distributing and supporting 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
13
<PAGE>
. 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 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. To date we are not aware of any problems
related to these products as a result of the transition to January 1, 2000.
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. To date we have not received any notification from these third
parties of any year 2000 problem or disruption that they are experiencing.
However, 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 assure you that the consequences of their year 2000 failures will
not materially affect us. The success to date of our year 2000 efforts and the
efforts of our third party suppliers and vendors cannot guarantee that year
2000 problems will not materially 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.
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;
14
<PAGE>
. incur debt;
. assume liabilities;
. incur amortization expenses related to goodwill and other intangible
assets; or
. incur large and immediate write-offs.
Our operation of any acquired business will also involve numerous risks,
including:
. problems combining the purchased operations, technologies or products;
. unanticipated costs;
. diversion of management's attention from our core business;
. adverse effects on existing business relationships with suppliers and
customers;
. risks associated with entering markets in which we have no or limited
prior experience; and
. potential loss of key employees, particularly those of the purchased
organizations.
We cannot assure you that we will be able to successfully integrate any
businesses, products, technologies or personnel that we might acquire in the
future and any failure to do so could disrupt our business and seriously harm
our financial condition.
Risks Related To The Securities Markets And This Offering
Our Stock Price May Be Volatile
An active public market for our common stock may not be sustained. The
market for technology stocks has been extremely volatile. The following
factors could cause the market price of our common stock to fluctuate
significantly:
. 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
15
<PAGE>
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.
There May Be Sales Of A Substantial Amount Of Our Common Stock That Could
Cause Our Stock Price To Fall
Our common stock began trading on the Nasdaq National Market on October 22,
1999. To date there have been a limited number of shares trading in the public
market. This offering will result in additional shares of our common stock
being available on the open market. In addition, certain of our current
stockholders hold a substantial number of shares which are currently subject
to lock-up agreements or other restrictions limiting such stockholders ability
to sell such shares. These stockholders may be able to sell such shares in the
public market in the near future. In addition, as of January 29, 2000, options
to purchase a total of 17,849,484 shares of common stock were outstanding,
which options are subject to vesting schedules. Sales of a substantial number
of shares of our common stock in this offering and thereafter could cause our
stock price to fall. In addition, the sale of shares by our stockholders could
impair our ability to raise capital through the sale of additional stock. See
"Shares Eligible For Future Sales."
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 from 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 Have Substantial Control Over Sycamore And Could Limit Your
Ability To Influence The Outcome Of Key Transactions, Including Changes of
Control
The executive officers, directors and entities affiliated with them will,
in the aggregate, beneficially own approximately 77.7% of our outstanding
common stock following the completion of this offering. These stockholders, if
acting together, would be able to influence significantly all matters
requiring approval by our stockholders, including the election of directors
and the approval of mergers or other business combination transactions.
Provisions Of Our Charter Documents And Delaware Law May Have Anti-Takeover
Effects That Could Prevent A Change Of Control
Provisions of our amended and restated certificate of incorporation,
bylaws, and Delaware law could make it more difficult for a third party to
acquire us, even if doing so would be beneficial to our stockholders.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. You can identify these statements by
forward-looking words such as "anticipate," "believe," "could," "estimate,"
"expect," "intend," "may," "should," "will" and "would" or similar words. You
should read statements that contain these words carefully because they discuss
our future expectations, contain projections of our future results of
operations or of our financial position or state other "forward-looking"
information. We believe that it is important to communicate our future
expectations to our investors. However, there may be events in the future that
we are not able to accurately predict or control. The factors listed above in
the section captioned "Risk Factors," as well as any cautionary language in
this prospectus, provide examples of risks, uncertainties and events that may
cause our actual results to differ materially from the expectations we
describe in our forward-looking statements. Before you invest in our common
stock, you should be aware that the occurrence of the events described in
these risk factors and elsewhere in this prospectus could have a material
adverse effect on our business, results of operations and financial position.
16
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the 12,394,707 shares of
common stock offered by us at an assumed public offering price of $ per
share will be approximately $ after deducting estimated offering expenses
of $ million and the underwriting discounts and commissions payable by us.
We will not receive any of the proceeds from the sale of the shares being sold
by the selling stockholders. See "Principal and Selling Stockholders."
The principal purposes of this offering are to obtain additional working
capital, create a larger public float for our common stock, facilitate our
future access to public capital markets and allow for the orderly liquidation
of a portion of the investments made by certain of our stockholders.
We expect to use the net proceeds from the sale of shares of common stock
offered by us for general corporate purposes, including for working capital
and capital expenditures, and to expand our sales and marketing operations,
broaden our customer support capabilities, develop new distribution channels
and fund research and development. We may use a portion of the net proceeds to
acquire businesses, products or technologies that we believe will complement
our current or future business. However, we have no specific acquisitions
currently planned. We will retain broad discretion in the allocation of the
net proceeds of this offering. Pending such uses, we plan to invest the net
proceeds in investment grade, interest-bearing securities.
PRICE RANGE OF COMMON STOCK
Our common stock has been quoted on the Nasdaq National Market under the
symbol "SCMR" since October 22, 1999. Prior to that time, there was no public
market for the common stock. The following table sets forth, for the periods
indicated, the high and low closing prices per share of the common stock as
reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
High Low
------- -----
<S> <C> <C>
First Quarter (since October 22, 1999)............................ $ 71.67 12.67
Second Quarter (through January 29, 2000)......................... $105.38 73.13
Third Quarter (through February , 2000).........................
</TABLE>
On February , 2000, the reported last sale price on the Nasdaq National
Market for our common stock was $ . As of January 29, 2000, there were
approximately 563 stockholders of record.
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. Any future determination to pay cash dividends will be at
the discretion of the board of directors and will be dependent upon our
financial condition, results of operations, capital requirements, general
business condition and such other factors as the board of directors may deem
relevant.
17
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of January 29, 2000.
The as adjusted information reflects the issuance and sale of the 12,394,707
shares of common stock offered by us in this offering at an assumed public
offering price of $ per share and the application of the estimated net
proceeds we expect to receive from this offering. The outstanding share
information excludes (1) 17,849,484 shares of common stock issuable upon
exercise of outstanding options as of January 29, 2000, (2) 39,722,112 shares
of common stock reserved for future issuance under our 1999 Stock Incentive
Plan as of January 29, 2000, (3) 2,250,000 shares of common stock reserved for
future issuance under our 1999 Employee Stock Purchase Plan as of January 29,
2000 and (4) 1,320,000 shares of common stock reserved for future issuance
under our 1999 Non-Employee Director Option Plan as of January 29, 2000. 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 January 29, 2000
---------------------------------------
Actual As Adjusted
------------------ -------------------
(in thousands, except share data)
<S> <C> <C>
Stockholders' equity:
Preferred stock, $.01 par value;
5,000,000 shares authorized, no shares
issued and outstanding.................. $ -- $
------------------ --------------
Common stock, $.001 par value;
1,500,000,000 shares authorized,
236,094,852 shares issued and
outstanding, actual; 248,489,559 shares
issued and outstanding, as adjusted .... 236
Additional paid-in capital............... 384,821
Accumulated deficit...................... (27,534)
Notes receivable......................... (460)
Deferred compensation.................... (49,852)
Accumulated other comprehensive loss..... (31)
------------------ --------------
Total stockholders' equity............. 307,180
------------------ --------------
Total capitalization................. $ 307,180 $
================== ==============
</TABLE>
18
<PAGE>
DILUTION
Our net tangible book value at January 29, 2000 was approximately $307.2
million, or $1.30 per share of common stock. Net tangible book value per share
represents our tangible net worth (tangible assets less total liabilities)
divided by the 236,094,852 shares of common stock outstanding. After giving
effect to the issuance and sale of the shares of common stock offered by us in
this offering (at an assumed public offering price of $ per share) and the
receipt and application of the net proceeds from the sale of these shares, our
net tangible book value at January 29, 2000 would be $ million, or $ per
share. This represents an immediate increase in the net tangible book value to
existing stockholders of $ per share and an immediate dilution to new
investors of $ per share. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share............................ $
Net tangible book value per share at January 29, 2000............ $
Increase in net tangible book value per share attributable to new
investors.......................................................
------
Net tangible book value per share after this offering..............
----
Dilution per share to new investors................................ $
====
</TABLE>
The table above assumes no exercise of the underwriters' over-allotment
option. See "Underwriters." The foregoing table also assumes no options have
been or are exercised after January 29, 2000. As of January 29, 2000, there
were outstanding options to purchase 14,373,147 shares of common stock at a
weighted average exercise price of $3.63 per share under our 1998 Stock
Incentive Plan, outstanding options to purchase 3,386,337 shares of common
stock at a weighted average exercise price of $86.58 per share under our 1999
Stock Incentive Plan and outstanding options to purchase 90,000 shares of
common stock at a weighted average exercise price of $3.00 per share under our
1999 Non-Employee Director Option 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 January 29, 2000, net
tangible book value per share after this offering would be $ and total
dilution per share to new investors would be $ .
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the consolidated 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 fiscal 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. The consolidated
statement of operations data for the six-month periods ended January 30, 1999
and January 29, 2000, and the consolidated balance sheet data as of January
29, 2000 are unaudited. 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 the audited financial statements and the notes thereto
appearing elsewhere in this prospectus. The historical results are not
necessarily indicative of results to be expected for any future period.
<TABLE>
<CAPTION>
Period from
Inception
(February 17, Six Months Ended
1998) Year -----------------------
through Ended January 30, January 29,
July 31, 1998 July 31, 1999 1999 2000
------------- ------------- ----------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenues................... $ -- $ 11,330 $ -- $48,559
Cost of revenues........... -- 8,486 239 25,736
------ -------- ------- -------
Gross profit (loss)...... -- 2,844 (239) 22,823
Operating expenses:
Research and
development............. 497 13,955 3,238 18,019
Sales and marketing...... 92 4,064 422 8,395
General and
administrative.......... 199 1,405 373 1,910
Amortization of stock
compensation............ 5 3,469 210 6,355
------ -------- ------- -------
Total operating
expenses.............. 793 22,893 4,243 34,679
------ -------- ------- -------
Loss from operations....... (793) (20,049) (4,482) (11,856)
Interest income, net....... 100 559 193 4,505
------ -------- ------- -------
Net loss................... $ (693) $(19,490) $(4,289) $(7,351)
====== ======== ======= =======
Basic and diluted net loss
per share................. $ (.18) $ (2.09) $ (.47) $ (.07)
Weighted average shares
used in computing basic
and diluted net loss per
share..................... 3,753 9,324 9,160 107,555
Pro forma basic and diluted
net loss per share
(unaudited)............... $ (.01) $ (.17) $ (.05) $ (.04)
Weighted average shares
used in computing pro
forma basic and diluted
net loss per share
(unaudited)............... 56,268 114,435 87,655 172,244
</TABLE>
<TABLE>
<CAPTION>
As of
As of As of January 29,
July 31, 1998 July 31, 1999 2000
------------- ------------- -----------
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and marketable
securities........................... $4,279 $28,989 $288,576
Working capital....................... 4,341 40,450 292,043
Total assets.......................... 5,081 57,912 344,678
Long term debt, less current portion.. -- 4,054 --
Total stockholders' equity (deficit).. (678) (13,623) 307,180
</TABLE>
- --------
See note 2 to the notes to the consolidated financial statements for a
description of the computation of basic and diluted net loss per share, pro
forma basic and diluted net loss per share and the number of shares used to
compute basic and diluted net loss per share and pro forma basic and diluted
net loss per share.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
We develop and market products that transport voice and data traffic over
wavelengths of light. Our products enable service providers to quickly and
cost effectively provide bandwidth and create new high-speed data services.
From our inception on February 17, 1998 through May 1, 1999, our operating
activities consisted primarily of research and development, product design,
development and testing. During this period, we also staffed and trained our
administrative, marketing and sales personnel and began sales and marketing
activities. We began shipping our SN 6000 Intelligent Optical Transport
product in May 1999, our SN 8000 Intelligent Optical Network Node in August
1999 and our SilvxManager Network Management System in November 1999. To date
all of our product revenues have been derived from these products. Since our
inception, we have incurred significant losses, and as of January 29, 2000, we
had an accumulated deficit of $27.5 million. We have not achieved
profitability on a quarterly or an annual basis.
Our SN 16000 Intelligent Optical Switch product is currently in the test
stage. While we are developing and plan to introduce new products and
enhancements, we cannot assure you that we will be successful in these
efforts.
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 continue 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 the uncertainties are
resolved. Revenue from technical support and maintenance contracts is deferred
and recognized ratably over the period of the related agreements. We record a
warranty liability for parts and labor on our products. Warranty periods are
generally three years from installation date. Estimated warranty costs are
recorded at the time of revenue recognition.
Our manufacturing expenses consist of amounts paid to third party
manufacturers, manufacturing start-up expenses, manufacturing personnel and
related costs and our customer support group. We outsource our manufacturing
and assembly requirements. Accordingly, a significant portion of our
manufacturing expenses consists of payments to a third-party contract
manufacturer. Manufacturing and engineering 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 its 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.
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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. 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 (February 17,
1998) through July 31, 1998, the fiscal year ended July 31, 1999 and the six
months ended January 29, 2000, which were deemed to be below fair market
value, we recorded deferred stock compensation expense of approximately
$184,000 and $25.2 million and $31.2 million, respectively.
Deferred stock compensation expense consists of charges resulting from the
granting of stock options and restricted shares with exercise or sales prices
deemed to be below the fair value of our common stock on the date of grant.
These amounts are being amortized ratably over the vesting periods of the
applicable options or restricted stock, which are typically five years, with
20% vesting on the first anniversary of the date of grant and 5% vesting
quarterly thereafter.
Results of Operations
Six Months Ended January 29, 2000 and January 30, 1999
Revenues
We began shipping the SN 6000 in May 1999, the SN 8000 in August 1999 and
SilvxManager in November 1999. Revenues for the six months ended January 29,
2000 were $48.6 million (none for the corresponding period in fiscal 1999).
For the six months ended January 29, 2000, one customer, Williams
Communications, accounted for substantially all of our revenues.
Cost of Revenues
Cost of revenues was $25.7 million for the six months ended January 29,
2000 compared to $239,000 for the six months ended January 30, 1999. Cost of
revenues includes material costs, costs of manufacturing overhead, the cost of
the customer service organization and other period costs.
Research and Development Expenses
Research and development expenses increased $14.8 million to $18.0 million
for the six months ended January 29, 2000 compared to $3.2 million for the
same period in fiscal 1999. 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 new
products as well as enhancements to existing products. Research and
development is essential to our future success and we expect that the dollar
amounts of research and development expenses will increase in future periods.
Sales and Marketing Expenses
Sales and marketing expenses increased $8.0 million to $8.4 million for the
six months ended January 29, 2000 compared to $422,000 for the same period in
fiscal 1999. 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 that the dollar amounts of sales
and marketing expenses will increase in future periods.
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General and Administrative Expenses
General and administrative expenses increased $1.5 million to $1.9 million
for the six months ended January 29, 2000 compared to $373,000 for the same
period in fiscal 1999. The increase in expenses reflects the hiring of
additional general and administrative personnel and expenses necessary to
support increased levels of business activities. We expect that the dollar
amounts of general and administrative expenses will increase in future periods
as a result of expansion of business activity and the reporting and other
requirements of being a publicly traded company.
Amortization of Stock Compensation
Amortization of stock compensation expense was $5.3 million and $210,000
for the six months ended January 29, 2000 and January 30, 1999, respectively.
Amortization of stock compensation expense in both periods 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, for the six months ended January 29, 2000, we incurred $1.1
million of compensation expense associated with the grant of options to non-
employees and consultants. Amortization of stock compensation is expected to
impact our reported results of operations through the first quarter of fiscal
2005.
Interest Income, Net
Interest income, net was $4.5 million and $193,000 for the six months ended
January 29, 2000 and January 30, 1999, respectively. The increase in interest
income reflects higher invested balances and interest earnings on the proceeds
of our initial public offering, offset by interest payments on the notes
payable.
Net Operating Losses and Tax Credit Carryforwards
As of January 29, 2000, we had approximately $17.0 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 2005 and 2020, 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. We will re-evaluate our ability to
utilize the net operating loss carryforwards on a quarterly basis.
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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 for the year 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.
Cost of Revenues
Cost of revenues was $8.5 million, or 75% of revenue, for the year ended
July 31, 1999. We began shipping the SN 6000 in May 1999. Cost of revenues as
a percentage of revenue in fiscal 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.
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 fiscal 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
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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.
Quarterly Results of Operations
The following table presents our operating results for the quarters ended
July 31, 1999, October 30, 1999 and January 29, 2000, which are the only
quarters for which we have recognized revenue, together with the percentage of
revenues of certain items in our statement of operations for these quarters.
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>
July 31, October 30, January 29,
1999 1999 2000
------------ ------------ ----------------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenues....................... $11,330 100% $19,510 100% $ 29,049 100%
Cost of revenues............... 7,313 65 10,340 53 15,396 53
------- --- ------- --- -------- ----
Gross profit................. 4,017 35 9,170 47 13,653 47
------- --- ------- --- -------- ----
Operating expenses:
Research and development....... 7,383 65 7,844 40 10,175 35
Sales and marketing............ 2,466 22 3,445 18 4,950 17
General and administrative..... 653 6 751 4 1,159 4
Amortization of stock
compensation.................. 2,667 23 3,289 17 3,066 11
------- --- ------- --- -------- ----
Total operating expenses..... 13,169 116 15,329 79 19,350 67
------- --- ------- --- -------- ----
Loss from operations........... (9,152) (81) (6,159) (32) (5,697) (20)
Interest income, net........... 71 1 442 3 4,063 14
------- --- ------- --- -------- ----
Net loss....................... $(9,081) (80)% $(5,717) (29)% $ (1,634) (6)%
======= === ======= === ======== ====
</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;
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. costs related to acquisitions of technology or businesses; and
. general economic conditions as well as those specific to the
telecommunications, Internet and related industries.
We plan to increase significantly our operating expenses to fund greater
levels of research and development, expand our sales and marketing operations,
broaden our customer support capabilities and develop new distribution
channels. We also plan to expand our general and administrative capabilities
to address the increased reporting and other administrative demands which will
result from increasing the 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
Prior to our initial public offering, which we completed in October 1999,
we financed our operations primarily through private sales of our capital
stock totaling approximately $58.7 million and through borrowings on long-term
debt agreements for the purchase of capital equipment. In our initial public
offering, we sold 22,425,000 shares of common stock at a price to the public
of $12.67 per share. The net proceeds of our initial public offering, after
deducting underwriting discounts and other offering expenses, were
approximately $263.0 million. As of January 29, 2000 we had $288.6 million in
cash, cash equivalents and marketable securities. We invest excess funds in
short-term money market funds, commercial paper and government and non-
government debt securities.
Cash used in operating activities was $598,000 in fiscal 1998 and $27.6
million for the year ended July 31, 1999. The increase in cash used in
operating activities in fiscal 1999 compared to fiscal 1998 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. For the six months ended
January 29, 2000, the cash provided by operating activities was $10.3 million,
an increase of $37.9 million as compared to $27.6 million cash used in fiscal
1999. The increase in cash generated from operating activities reflects
decreased net losses and increased accrued expenses and accounts payable,
offset by increased inventory purchases.
Cash used in investing activities was $3.7 million in fiscal 1998, $10.0
million for the year ended July 31, 1999 and $155.2 million in the six months
ended January 29, 2000. The increase in net cash used in investing activities
reflects increased purchases of property and equipment, primarily for
computers and test equipment for our development and manufacturing activities,
and increased net purchases of marketable securities.
Cash provided by financing activities was $5.5 million in fiscal 1998,
$58.4 million for the year ended July 31, 1999 and $260.9 million in the six
months ended January 29, 2000. The increase in cash provided by financing
activities reflects the proceeds from the issuance of preferred and common
stock, including our initial public offering in October, 1999 offset by
payments of debt obligations.
In December 1998, we issued an irrevocable stand-by letter of credit for
$92,000 for an office facility lease which is collateralized by an U.S.
Treasury Bill. The letter of credit is irrevocable and expires in January
2002.
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Increasingly, as a result of the financial demands of major network
deployments, service providers are looking to their suppliers for financing
assistance. From time to time we may provide or commit to extend credit or
credit support to our customers as we consider appropriate in the course of
our business, considering our limited resources. This financing may include
extending credit to customers or guaranteeing the indebtedness of customers to
third parties. Depending upon market conditions, we may seek to factor these
arrangements to financial institutions and investors to free up our capital
and reduce the amount of our commitments for such arrangements. Our ability to
provide customer financing is limited and depends upon a number of factors,
including our capital structure and level of our available credit and our
ability to factor commitments. Any extension of financing to our customers
will limit the capital that we have available for other uses.
Although we believe that our current cash balances, together with the
anticipated proceeds of this offering, will be sufficient to fund our
operations for at least the next 12 months, there can be no assurance that we
will not require additional financing within this time frame or that such
additional funding, if needed, will be available on terms acceptable to us or
at all.
Year 2000 Readiness Disclosure
State of Readiness of Our Products
We have designed our products for use in the year 2000 and beyond and we
believe our products are year 2000 compliant. To date we have not experienced,
and are not aware of, any problems related to these products as a result of
the transition to January 1, 2000. 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 these third-party vendor products are year 2000 compliant. We may face
warranty and other claims based on year 2000 problems in other companies'
products or based on issues arising from the integration of multiple products
within the customer's 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. 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. We are not
currently aware of any year 2000 problem relating to any of our material
internal systems. 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. Our material third-party
vendors have stated that they are, or expect to be, year 2000 complaint in a
timely manner. While we have not received any notification from any such
vendor of any year 2000 problems or disruptions, we cannot independently
verify the year 2000 compliance of our third party vendors. We believe that
absent a systemic failure outside of our control, such as a prolonged loss of
electrical or telephone service, year 2000 problems of third parties such as
manufacturers, suppliers, customers and service providers will not have a
material impact on our operations. Due to the uncertainty as to the year 2000
readiness of our manufacturers, suppliers, customers and other service
providers, we are unable to assure you that the consequences of their year
2000 failures will not materially affect us. The success to date of our year
2000 efforts and the efforts of our material third party vendors cannot
guarantee that there will not be a material adverse effect on our business,
results of operations or financial condition should a year 2000 problem
manifest or become apparent in the future.
Risks
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
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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. While we are
not aware of any year 2000 problems suffered to date by any of our
manufacturers, suppliers, vendors, partners, customers or service providers,
due to the general uncertainty inherent in the year 2000 problem, we are
unable to determine at this time whether year 2000 failures they experience
could harm our business, results of operations or financial condition. Our
customers' purchasing plans could be affected by year 2000 issues if they need
to expend significant resources to fix their existing internal systems to
become year 2000 compliant. This situation may reduce funds available to
purchase our products.
In addition, in the event that a significant number of our customers
experience year 2000-related problems, whether or not due to our products,
demand for technical support and assistance may increase substantially. In
such case, our cost for providing technical support may rise and the quality
of such technical support and our ability to manage incoming requests may be
impaired.
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 in
connection with our year 2000 remediation efforts will be material. We have
developed contingency plans to be implemented if our efforts to identify and
correct year 2000 problems affecting our internal systems are not effective.
Our implementation of any contingency plan could have an adverse effect on our
business, results of operations or financial condition.
Market Risk
We do 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.
We operate primarily in the United States, and all sales have been made in
US dollars. Accordingly, there has not been any material exposure to foreign
currency rate fluctuations.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities," which establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, (collectively referred to
as derivatives) and for hedging activities. 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 $26 billion
was invested globally in 1999 in building and enhancing the transmission
capability of the public network. This investment was spread across SONET/SDH
equipment, dense wave division multiplexing equipment, known as DWDM, and
optical networking equipment.
Existing Public Network Transmission Infrastructure
Despite these investments, service providers are still unable to quickly
respond to the bandwidth demands of their customers. We believe that this
inability is due in large part to the transmission architecture of the
existing public network. This architecture is based upon telecommunications
standards, referred to as SONET in North America and SDH elsewhere in the
world, which set the hierarchical characteristics for transmitting optical
signals. A SONET/SDH network typically consists of three primary components:
. fiber optic cable that serves as the physical transmission medium and
provides the available capacity;
. DWDM equipment, which multiplies the transmission capacity of a specific
fiber by dividing a single strand into multiple lightpaths, or
wavelengths; and
. SONET/SDH transmission equipment, which converts data traffic from an
electrical signal to an optical signal for transport over the fiber
network.
In the current public network transmission infrastructure, the ability to
manage data resides in the SONET/SDH equipment which converts the data traffic
from an electrical signal to an optical signal which is transmitted over the
fiber. The optical fiber itself is only a physical transmission medium with no
imbedded
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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 multiple parallel optical wavelengths. Under either approach,
network complexity increases since each optical wavelength must be terminated
by SONET/SDH equipment and the interconnection of multiple SONET/SDH rings will
absorb some available network capacity.
Data traffic will typically transit through multiple SONET/SDH rings when
traversing the public network. In addition, in SONET/SDH networks, up to 50% of
network capacity must be reserved to provide alternative routing for traffic in
the event of a network outage. This redundancy, and the numerous optical-to-
electrical-to-optical conversions within each ring and between rings, create a
costly and complex network architecture.
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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. With our
network management system, service providers will be able to offer value-added
services such as customer network management 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-
31
<PAGE>
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 commercially available products help service providers
improve the utilization of fiber optic capacity that has already been deployed
in the network. Our optical switch, which is in the test stage, will
facilitate the creation of meshed network environments. A meshed-based network
provides greater flexibility than a ring-based network and provides for more
direct routes between network points, enabling more efficient network restoral
or redundancy schemes. In addition, we intend to differentiate ourselves from
our competition by offering other products that will enable customers to
utilize, restore and provide data services over wavelengths and monitor and
improve the performance level of network traffic.
Collaborate With Customers To Generate Demand For High Speed Data
Services. We work collaboratively with our customers to help them identify and
create new high speed data services. Our professional services team provides
assistance in such areas as network planning, design, implementation and
service launch to facilitate the introduction of these services. By helping
our customers to create new services, we help generate additional revenue
opportunities for our customers and drive additional demand for our products.
Utilize Software-Based Product Architecture. Our products utilize a common
software-based architecture that permits improved flexibility and
interoperability and expanded network management capabilities. The common
architecture is designed to reduce the complexity of introducing new software
revisions across the network. We believe that this architecture will
accelerate the release of new products and enable our customers to upgrade
with minimal network impact and operator training.
Incorporate Commercially Available Optical Hardware Components. We use
commercially available optical hardware components in our products wherever
feasible. We believe that by using these third-party components, we benefit
from the research and development of the vendors of these products, as well as
from the efficiencies of scale that these vendors generate by producing the
components in higher volumes. As a result of our use of these components, we
believe that we can more quickly bring to market a broad-based product line at
a lower cost than if we had utilized proprietary components.
Outsource Manufacturing. We outsource the manufacturing of our products to
reduce our cost structure and to maintain our focus on the development of
value-added software. We believe that most optical networking companies have
manufactured their own products in order to implement specialized
manufacturing techniques historically required for optical componentry.
However, we believe that the quality and consistency of optical manufacturing
techniques have advanced significantly and that, as a result, it is now
possible to engage third party manufacturers to build our products without
sacrificing quality or performance.
Focus On Just-In-Time Implementation. Our product architecture strategy is
to develop products that will enable service providers to expand and upgrade
their networks in response to demand on a "just-in-time" basis. Our software-
based product architecture is designed to help us achieve this goal. Our
software capabilities support a modular "plug and play" hardware architecture
which is designed to allow new and enhanced modules to be easily and
nondisruptively inserted into the network as optical component technology
advances.
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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
. new revenue opportunities for service providers through advanced features
that support value-added service offerings.
We believe that the acceptance and implementation of intelligent optical
networking technology by service providers will be a gradual process driven by
high speed data service demands and network scaling requirements. Our product
strategy will allow service providers to migrate from today's SONET/SDH
network architecture to an intelligent optical network while preserving their
investment in the existing network. As intelligent optical networking
equipment is introduced into an existing SONET/SDH network, the service
provider can increasingly deliver high speed services directly from the
optical network. As the intelligent optical network continues to grow,
switching can be introduced into the optical network to support increased
scaling and efficient traffic routing and to complete the transition to a
meshed-based network architecture. Throughout all of these stages of network
development, we expect to offer the software-based management tools which will
allow the service provider to effectively provision and manage services end-
to-end.
Sycamore's intelligent optical networking products incorporate the
following features:
Intelligent Optical Networking Software. Our entire product line shares a
common software base. This software foundation allows us to minimize product
development time by leveraging our software architecture across multiple
product lines. Our software architecture is designed to provide service
providers with tools to continue to evolve their network without requiring the
replacement of existing infrastructure. In addition, the architecture is
designed to enable service providers to rapidly absorb new optical technology
and functionality into the network with minimal effort, training and
incremental investment. Software-based features such as topology discovery,
system self-inventory and dynamic power balancing will allow service providers
to quickly respond to customer needs. Additionally, advances in optical
components, such as new lasers, filters, and amplifiers, can be quickly
integrated within this software-based environment.
SONET/SDH Functionality. Our products are designed to provide the optical
interfaces and management and restoration capabilities traditionally offered
on SONET/SDH equipment. By supporting these capabilities
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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 Commercially
Optical available
------------------------------------------------------
Network Node OC-12/STM-4 Wave Service In test stage
------------------------------------------------------
OC-3/STM-1 Wave Service In test stage
------------------------------------------------------
Gigabit Ethernet/Fiber Channel In development
Wave Service
------------------------------------------------------
OC-192/STM-64 Wave Service In development
- -------------------------------------------------------------------------------------
SilvxSource SN 6000/8000 Provides local management of wave Commercially
Management services available
Software
--------------------------------------------------------------------------
SN 16000 Provides local management of wave In test stage
Management services
Software
- -------------------------------------------------------------------------------------
SilvxManager Network Provides end-to-end management of Commercially
Management wave services available
System (Software)
- -------------------------------------------------------------------------------------
SN 16000 Intelligent Provides wave-based switching and In test stage
Optical Switch routing in a meshed network
environment
</TABLE>
- --------
* References to OC services are to data transport services at a speed
indicated by the number following the OC designation. For example, OC-48
service designates a transmission speed of 2.5 gigabytes per second. Higher
numbers denote faster transmission speeds.
SN 6000. The SN 6000 is an intelligent optical transport product designed
specifically to work within an existing SONET/SDH network. The SN 6000 enables
high speed services over fiber optic wavelengths and can be overlaid on top of
the existing network. The SN 6000 will allow a service provider to begin the
migration from a SONET/SDH network to an intelligent optical network.
SN 8000. The SN 8000 is an intelligent optical network node 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.
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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 the SN 16000) and the
SilvxManager software runs on a centralized management station.
SN 16000. The SN 16000 is an intelligent optical switch for end-to-end
wavelength switching and routing, which is necessary for the creation of a
meshed topology network. The SN 16000 supports incremental network growth
through a modular architecture and has been designed to coexist with the SN
6000 and the SN 8000, as well as other third-party optical networking
products. This product is currently in the test stage.
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 January 29, 2000, substantially all of our revenues to
date have been from shipments of product to one customer, Williams
Communications, Inc. We have also shipped our products to several other
customers, including Millenium Optical Networks, Louis Dreyfus Communications
and Enron Broadband Services.
Sales and Marketing
We sell our products through a direct sales force. In addition, we are
currently establishing 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 January 29, 2000, our
sales and marketing organization consisted of 60 employees, of which:
. 32 were located in our headquarters in Chelmsford, Massachusetts;
. 25 were located in a total of 7 sales and support offices around the
United States;
. 2 were located in Germany; and
. 1 was located in Korea.
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.
We announced the formation of the Optical Domain Service Interconnect
initiative during the quarter ended January 29, 2000. This is an industry-wide
initiative of 100 networking vendors and service providers interested in
developing a practical framework for interoperability between the electrical
and optical networks. When implemented, this initiative is expected to enhance
a service provider's ability to offer real-time services on a "when you need
it" basis.
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.
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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 January 29, 2000, we had 135 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 $18.0 million
for the six months ended January 29, 2000, $14.0 million for the year ended
July 31, 1999 and $497,000 for the period from inception through July 31,
1998.
While we have developed, and expect to continue to develop, most new
products and enhancements to existing products internally, we have licensed
certain commercially available software technology from third parties.
Competition
The market for intelligent optical networking products is intensely
competitive, subject to rapid technological change and significantly affected
by new product introductions and other market activities of industry
participants. We expect competition to persist and intensify in the future.
Our primary sources of competition include vendors of network infrastructure
equipment and optical network equipment, such as Ciena Corporation, Cisco
Systems, Lucent Technologies and Nortel Networks, and private companies that
have focused on our target market. Many of our competitors have significantly
greater financial resources than us and are able to devote greater resources
to the development, promotion, sale and support of their products. In
addition, many of our competitors have more extensive customer bases and
broader customer relationships than us, including relationships with our
potential customers.
In order to compete effectively, we must deliver products that:
. provide extremely high network reliability;
. scale easily and efficiently with minimum disruption to the network;
. interoperate with existing network designs and equipment vendors;
. reduce the complexity of the network by decreasing the need for
overlapping equipment;
. provide effective network management; and
. provide a cost-effective solution for service providers.
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 have
limited 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 several
patent applications pending in the United States and we cannot be certain that
patents will be granted based on these or any other applications. We seek to
protect our source code for our software,
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<PAGE>
documentation and other written materials under trade secret and copyright
laws. We license our software pursuant to signed or shrinkwrap 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, consultants and any third party 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 proprietary rights 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 intellectual property 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. We recently
executed a supply contract with Celestica Corporation, which provides
comprehensive manufacturing services, including assembly, test, control and
shipment to our customers, and procures materials on our behalf. This contract
has an indefinite term and is cancellable by Celestica without cause on one-
year's advance notice. Under this agreement, Celestica is committed to supply
products and services that we order pursuant to conforming purchase orders. 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 also purchase products from our other
manufacturers on a purchase order basis.
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<PAGE>
Employees
As of January 29, 2000, we had a total of 277 employees of which:
. 135 were in research and development;
. 60 were in sales and marketing;
. 20 were in customer service and support;
. 24 were in manufacturing; and
. 38 were in finance and administration.
Our future success will depend in part on our ability to attract, retain
and motivate highly qualified technical and management personnel, for whom
competition is intense. Our employees are not represented by any collective
bargaining unit. We believe our relations with our employees are good.
Properties
Our headquarters are currently located in a leased facility in Chelmsford,
Massachusetts, consisting of approximately 35,000 square feet under a lease
that expires in 2002. We also lease a facility in Chelmsford, Massachusetts,
consisting of approximately 80,000 square feet used primarily for research and
development under a lease that expires in 2004.
Legal Proceedings
In the ordinary course of business, we become involved in various lawsuits
and claims. In addition, we have in certain instances agreed to assume the
costs of defending lawsuits brought against our current or prospective
employees by their former employers. While the outcome of these matters is not
currently determinable, we believe, after consultation with legal counsel,
that the outcome will not have a material adverse effect on the results of our
operations or our financial position.
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<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of Sycamore, and their respective ages
and positions as of January 29, 2000, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Executive Officers and
Directors:
Gururaj Deshpande........ 49 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.......... 56 Vice President, International Sales
Jeffry A. Kiel........... 35 Vice President, Product Marketing
Anita Brearton........... 41 Vice President, Corporate Marketing
Kevin J. Oye............. 41 Vice President, Business Development
Richard A. Barry......... 33 Chief Technical Officer
Eric A. Swanson.......... 39 Chief Scientist
Timothy A. Barrows
(1)(2).................. 42 Director
Paul J. Ferri (1)(2)..... 61 Director
John W. Gerdelman(1)..... 47 Director
</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 June 1997, Mr. Smith served as President and Chief
Executive Officer and a member of the board of directors of Cascade
Communications Corp.
Frances M. Jewels has served as our Vice President of Finance and
Administration, Treasurer and Secretary since June 1999 and Chief Financial
Officer since July 1999. From June 1997 to June 1999, Ms. Jewels served as
Vice President and General Counsel of Ascend Communications, Inc. From April
1994 to June 1997, Ms. Jewels served as Corporate Counsel of Cascade
Communications Corp. Prior to April 1994, Ms. Jewels practiced law in private
practice and, prior to that, practiced as a certified public accountant.
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<PAGE>
Chikong Shue has served as our Vice President of Engineering since August
1998. From June 1997 to July 1998, Mr. Shue was Vice President of Software and
Systems Engineering of the Core Switching Division of Ascend Communications,
Inc. Mr. Shue was a co-founder of Cascade Communications Corp. and served as
director of software engineering at Cascade from May 1991 to August 1994 and
as a corporate fellow and Vice President of Cascade's Remote Access
Engineering division from September 1994 until March 1997.
Ryker Young has served as our Vice President of Sales since August 1998.
From July 1997 to August 1998, Mr. Young was Central Region Director of Sales
for Ascend Communications, Inc. From January 1996 to June 1997, Mr. Young was
the South Central Regional District Manager for Cascade Communications Corp.
From October 1994 to December 1995, Mr. Young was Major Account Manager for
Cisco Systems, Inc.
John E. Dowling has served as our Vice President of Operations since August
1998. From July 1997 to August 1998, Mr. Dowling served as Vice President of
Operations of Aptis Communications, a manufacturer of carrier-class access
switches for network service providers. Mr. Dowling served as Vice President
of Operations of Cascade Communications Corp. from May 1994 to June 1997.
Kurt Trampedach has served as our Vice President of International Sales
since July 1999. From June 1999 to July 1999, Mr. Trampedach was Vice
President, Carrier Market Development for Lucent Technologies, Inc. From June
1997 to June 1999 he was Vice President, Carrier Market Development for Ascend
Communications, Inc. From September 1996 to June 1997, Mr. Trampedach was Vice
President, International Sales for Cascade Communications Corp. Mr. Trampedach
was Vice President, European Operations for Alcatel USA, Inc. from April 1994
to September 1996.
Jeffry A. Kiel has served as our Vice President, Product Marketing since
July 1999 and as Director of Marketing from September 1998 to July 1999. Mr.
Kiel served as Director of Product Marketing at Ascend Communications, Inc.
from June 1997 to September 1998. From August 1996 to June 1997, Mr. Kiel
served as Product Marketing Manager of Cascade Communications Corp. From
October 1993 to August 1996, Mr. Kiel was Senior Manager, Technical Staff at
BellSouth Telecommunications.
Anita Brearton has served as our Vice President, Corporate Marketing since
July 1999 and as Director of Marketing Programs from September 1998 to July
1999. From September 1997 to August 1998, Ms. Brearton served as Vice
President of Marketing for Artel Video Systems, Inc., a producer of fiber
optic video transmission and routing products. From June 1997 to September
1997, Ms. Brearton was Director of Marketing Programs for the core switching
division of Ascend Communications, Inc. Ms. Brearton served as Director of
Marketing Programs for Cascade Communications Corp. from November 1995 to June
1997. From July 1980 to August 1995, Ms. Brearton held several positions at
General DataCom Industries, Inc., most recently as International Marketing
Programs Manager.
Kevin J. Oye has served as our Vice President, Business Development since
October 1999. From March 1998 to October 1999, Mr. Oye served as Vice
President, Strategy and Business Development at Lucent Technologies, Inc. and
from September 1993 to March 1998, Mr. Oye served as the Director of Strategy,
Business Development, and Architecture at Lucent Technologies, Inc. From June
1980 to September 1993, Mr. Oye held various positions with AT&T Bell
Laboratories where he was responsible for advanced market planning as well as
development and advanced technology management.
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.
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Timothy A. 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. and OnDisplay, 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 Ezenia, 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.
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.
Election of Directors
Our board of directors is divided into three classes, each of whose members
serve for a staggered three-year term. Messrs. Barrows and Gerdelman serve in
the class whose term expires at the annual meeting of stockholders in 2000;
Messrs. Ferri and Deshpande serve in the class whose term expires at the
annual meeting of stockholders in 2001; and Mr. Smith serves 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. We also grant options to our
non-employee directors pursuant to our 1999 Non-Employee Director Plan, which
is described below.
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, Barrows and
Gerdelman, reviews the professional services provided by our independent
accountants, the independence of such accountants from our management, our
annual financial statements and our system of internal accounting controls.
The Audit Committee also reviews such other matters with respect to our
accounting, auditing and financial reporting practices and procedures as it
may find appropriate or may be brought to its attention.
41
<PAGE>
Executive Compensation
The table below sets forth, for the fiscal year ended July 31, 1999, the
cash compensation earned by:
. our Chairman of the Board;
. our Chief Executive Officer; and
. the other most highly compensated executive officer who received annual
compensation in excess of $100,000, collectively referred to below as the
Named Executive Officers.
In accordance with the rules of the Securities and Exchange Commission, the
compensation set forth in the table below does not include medical, group life
or other benefits which are available to all of our salaried employees, and
perquisites and other benefits, securities or property which do not exceed the
lesser of $50,000 or 10% of the person's salary and bonus shown in the table.
In the table below, columns required by the regulations of the Securities and
Exchange Commission have been omitted where no information was required to be
disclosed under those columns.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
--------------------------------- -----------------------------
Awards
----------------
Other Annual Securities All Other
Salary Bonus Compensation Underlying Compensation
($) ($) ($) Options/SARS (#) ($)
------- ------ ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
Gururaj Deshpande
Chairman and Founder... 100,000 -- -- -- --
Daniel E. Smith
President and Chief
Executive Officer...... 73,077(1) -- -- -- --
Ryker Young
Vice President, Sales.. 117,788 49,998(2) -- 180,000 9,326(3)
</TABLE>
- --------
(1) Represents the total amount of compensation Mr. Smith received in fiscal
1999 for the portion of the year during which he was one of our executive
officers. Mr. Smith joined us in October 1998.
(2) Represents advance commission income.
(3) Represents reimbursement for relocation expenses.
Stock Options
The following table contains information concerning the grant of options to
purchase shares of our common stock to each of the Named Executive Officers
during the fiscal year ended July 31, 1999. Percentages are based on an
aggregate of options to purchase 23,280,300 shares granted in fiscal 1999. All
options were granted at fair market value as determined by the board of
directors on the date of grant.
42
<PAGE>
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential
Number of Percent of Realizable Value
Securities Total Options at Assumed
Underlying Granted To Exercise Annual Rates of Stock
Options Employees in Price Appreciation for
Granted Fiscal Year ($/Share) Expiration Date Option Term(1)
---------- ------------- --------- --------------- ----------------------
5% 10%
---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Ryker Young............. 180,000(2) .78% $.11 June 16, 2009 12,578 31,875
</TABLE>
- --------
(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>
Shares
Acquired Value Number of Securities Value of Unexercised
On Exercise Realized Underlying Unexercised In-The-Money Options at
Name (#) ($) Options at July 31, 1999 July 31, 1999 ($)
---- ----------- -------- ------------------------- -------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ryker Young............. 180,000(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 $.33 per share, as determined by the board of
directors on such date, less the aggregate exercise price.
43
<PAGE>
Change in Control Agreements
Each of our executive officers has entered into a change in control
agreement with Sycamore. Under these agreements, each option or restricted
stock grant held by the executive officer which is scheduled to vest within
the twelve months after the effectiveness of a change of control of Sycamore
will instead vest immediately prior to the change in control. In addition, in
the event of a "Subsequent Acquisition" of Sycamore (as defined in these
agreements) following a change in control, all options or restricted stock
granted by Sycamore to such officers will vest immediately prior to the
effectiveness of such acquisition. If an officer is subject to any excise tax
on amounts characterized as excess parachute payments, due to the benefits
provided under this agreement, the officer shall be entitled to reimbursement
of up to $1,000,000 for any excess parachute excise taxes the officer may
incur.
In the event of a termination of an executive officer's employment
following a change of control, either by the surviving entity without cause or
by the executive due to a constructive termination, (1) all options and
restricted stock of the officer vest, (2) the officer is entitled to continued
paid coverage under Sycamore's group health plans for 18 months after such
termination, (3) the officer shall receive a pro rata portion of his or her
incentive bonus for the year in which the termination occurred, (4) the
officer shall receive an amount equal to 18 months of his or her base salary
and (5) the officer shall receive an amount equal to 150% of his or her annual
incentive bonus for the year in which the termination occurred.
Under these agreement's each executive officer agrees to abide by our
confidentiality and proprietary rights agreements and, for a period of one
year after such termination, not to solicit our employees or customers.
Limitations on Directors' 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.
In addition to the indemnification provided for in our amended and restated
certificate of incorporation, we have entered into agreements to indemnify
each of our directors and executive officers against liabilities that may
arise by reason of their status or service as directors and executive officers
and to advance their expenses incurred as a result of any proceeding against
them as to which they could be indemnified. These agreements, among other
things, provide for indemnification for judgements, fines, settlement amounts,
penalties and expenses for any action or proceeding, including, in certain
instances, actions taken by us or on or behalf, arising out of the status or
services of such persons as directors and executive officers.
The limited liability and indemnification provisions in our amended and
restated certificate of incorporation and bylaws may discourage stockholders
from bringing a lawsuit against our directors for breach of their fiduciary
duty and may reduce the likelihood of a derivative action against our
directors and executive officers, even though a derivative action, if
successful, might otherwise benefit us and our stockholders. A stockholder's
investment in us may be adversely affected to the extent we pay the costs of
settlement or damage awards under these indemnification provisions.
Benefit Plans
1998 and 1999 Stock Incentive Plans. Our 1999 Stock Incentive Plan was
adopted by our board of directors in August 1999 and approved by our
stockholders in September 1999. As of January 29, 2000,
44
<PAGE>
39,722,112 shares were available for issuance under the 1999 Plan. In
addition, there will be an annual increase beginning on August 1, 2000 of the
lesser of:
. 9,000,000 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 1,500,000 shares
in any calendar year.
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 options must have an exercise price not less than
110% of the fair market value of the common stock on the date of grant in the
case of incentive stock options granted to optionees holding more than 10% of
the voting power of Sycamore. 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.
Options granted under this plan have, to date, been immediately exercisable on
the date of grant. However, shares purchased on exercise of such options are
subject to a repurchase right in favor of Sycamore that generally entitles us
to repurchase these shares at their original exercise price upon a termination
of employment of the holder of the option prior to completion of the
applicable vesting period.
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 vested with respect to the total
45
<PAGE>
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. 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.
As of January 29, 2000, there were options to purchase 14,373,147 shares of
common stock outstanding under the 1998 Stock Incentive Plan, which plan has
terms and conditions that are substantially the same as the 1999 Plan. No
additional issuances of options will be made under the 1998 Stock Incentive
Plan.
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 2,250,000 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 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 2,250,000.
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 January 29, 2000,
approximately 225 of our employees would have been eligible to participate in
the purchase plan.
On the first day of an offering period, we will grant to each eligible
employee who has elected to participate in the purchase plan an option to
purchase shares of common stock as follows: the employee may authorize an
amount (up to 10%, or such lesser amount as shall be determined by the Board,
of such employee's base pay) to be deducted from such employee's base pay
during the offering period. On the last day of the offering period, the
employee is deemed to have exercised the option, at the option exercise price,
to the extent of accumulated payroll deductions. Under the terms of the
purchase plan, the option exercise price is an amount equal to 85% of the
closing price per share of the common stock on either the first day or the
last day of the offering period, whichever is lower. The first offering period
under the purchase plan will commence on the effective date of the
registration by Sycamore of its shares under the Exchange Act, with the option
price on the first day of such offering period equivalent to 85% of the
initial public offering price. In no event may an employee purchase in any one
offering period a number of shares which exceeds the number of shares
determined by dividing (1) $12,500 by (2) the closing market price of a share
of common stock on the first business day of the offering period or such other
number as may be determined by the Board prior to the commencement date of the
offering period. Each offering period is expected to be of 6 months (other
than the first offering period, which will end April 30, 2000); provided that
the board of directors may, in its discretion, choose a different offering
period of 27 months or less.
An employee who is not a participant on the last day of the offering
period, as a result of voluntary withdrawal or termination of employment or
for any reason, is not entitled to exercise any option, and the
46
<PAGE>
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 1,500,000 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 1,500,000.
Each director who is not also an employee or officer shall be automatically
granted an option to purchase 90,000 shares of common stock on the date the
person is first elected to the board.
In addition, each of these directors will be automatically granted an
option to purchase 30,000 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, however, shares purchased on exercise of such options are
subject to repurchase by us prior to completion of the applicable vesting
period. The term of each option is 10 years from the date of grant. Our board
of directors has discretion to establish the terms of options granted under
the plan. As of January 29, 2000, options to purchase 270,000 shares have been
granted under this 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.
47
<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 the initial public offering in October 1999, each share of
preferred stock converted into three shares of common stock, which were
subsequently split 3-for-1 in February 2000. 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 1,305,000 shares of common stock for $.11 per share
and Kurt Trampedach, our Vice President of International Sales, purchased an
aggregate of 1,125,000 shares of common stock for $.33 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. During October 1999, Kevin Oye, our Vice
President of Business Development, purchased an aggregate of 7,893 shares of
common stock for $12.67 per share. Kevin Oye's purchase of our stock was
financed by a loan from us in the principal amount of $99,978 that bears
interest at 8.25% per annum. This loan is due December 1, 2000 and is secured
by shares of our common stock. During fiscal 1999, Eric Swanson, our Chief
Scientist, purchased an aggregate of 1,912,500 shares of common stock at
prices ranging from $.04 to $.11 per share. Mr. Swanson's purchases of our
stock were financed by loans from us in an aggregate principal amount of
$180,000 which do not bear interest. These loans are due five years from the
date of purchase and are secured by shares of our common stock. 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.
48
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of January 29, 2000, and as adjusted to
reflect the sale of common stock offered in this prospectus, by:
. each person who is known to us to own beneficially more than 5% of the
outstanding shares of our common stock;
. each of our directors and the Named Executive Officers;
. all of our directors and executive officers as a group; and
. all stockholders who are selling shares of our common stock in this
offering.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Except as otherwise noted in the footnotes
below, we believe that each person or entity named in the table has sole
voting and investment power with respect to all shares of our common stock
shown as beneficially owned by them, subject to applicable community of
property laws. The percentage of shares of our common stock outstanding prior
to the offering is based on 236,094,852 shares of common stock outstanding as
of January 29, 2000. The percentage of shares of our common stock outstanding
after the offering, assuming full exercise of the over-allotment option, is
based on that number of shares plus the 14,644,707 shares offered hereby. In
computing the number of shares beneficially owned by a person named in the
following table and the percentage ownership of that person, shares of our
common stock that are subject to options held by that person that are
currently exercisable or exercisable within 60 days of January 29, 2000 are
deemed outstanding. These shares are not, however, deemed outstanding for the
purpose of computing the percentage ownership of any other person.
<TABLE>
<CAPTION>
Shares of Common Stock
Beneficially Owned after the
Shares of Common Stock Offering and Assuming Full
Beneficially Owned Prior to Exercise of the Over-
the Offerings Allotment Options
-------------------------------- ---------------------------------
Shares
Shares Subject to
Percentage Being Over- Percentage
Name and Address of Number of of Offered Allotment Number of of
Beneficial Owner (1) Shares Outstanding Hereby Option Shares Outstanding
-------------------- ----------------- -------------- --------- ---------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Gururaj Deshpande(2).... 48,986,007 20.7 240,000 -- 48,746,007 19.4
Daniel E. Smith(3)...... 44,109,549 18.7 240,000 -- 43,869,549 17.5
Chikong Shue(4)......... 8,691,345 3.7 867,000 -- 7,824,345 3.1
Ryker Young(5).......... 2,975,436 1.3 297,543 -- 2,677,893 1.1
Jeffry A. Kiel.......... 1,260,000 * 126,000 -- 1,134,000 *
Richard A. Barry........ 5,535,000 2.3 553,500 -- 4,981,500 2.0
Eric A. Swanson......... 2,824,500 1.2 281,250 -- 2,543,250 1.0
Timothy A.
Barrows(6)(7).......... 37,858,107 16.0 -- -- 37,858,107 15.1
Paul J. Ferri(6)........ 37,850,607 16.0 -- -- 37,850,607 15.1
John W. Gerdelman(8).... 102,000 * -- -- 102,000 *
Matrix V Management Co.,
L.L.C.(9) ............. 37,760,607 16.0 -- -- 37,760,607 15.1
Platyko Partners, L.P... 22,275,000 9.4 -- -- 22,275,000 8.9
The Gururaj Deshpande
Grantor Retained
Annuity Trust.......... 18,000,000 7.6 120,000 -- 17,880,000 7.1
All executive officers
and directors as a
group (15 persons)
(10)................... 197,383,731 83.2 2,605,293 -- 194,778,438 77.7
</TABLE>
- --------
* Less than 1% of the total number of outstanding shares of common stock.
(1) Except as otherwise noted, 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.
(2) Includes 3,937,500 shares held by the Deshpande Irrevocable Trust and
18,000,000 shares held by the Gururaj Deshpande Grantor Retained Annuity
Trust. Mr. Deshpande's wife serves as a trustee of each of these trusts.
49
<PAGE>
Mr. Deshpande disclaims beneficial ownership of these shares. Mr. Deshpande
is offering 120,000 shares and the Gururaj Deshpande Grantor Retained
Annuity Trust is offering 120,000 shares.
(3) Includes 22,275,000 shares held by Platyko Partners, L.P., of which Mr.
Smith and his wife serve as general partners.
(4) Includes 630,000 shares held by the Shue 1999 Trust.
(5) Includes 180,000 shares held by the E. Ryker Young Irrevocable Trust. Mr.
Ryker disclaims beneficial ownership of these shares.
(6) Includes 33,984,540 shares held by Matrix Partners V, L.P. and 3,776,067
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. Messrs. Barrows and Ferri, directors of
Sycamore, are general partners of Matrix V Management Co., L.L.C. Messrs.
Barrows and 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.
(7) Includes 3,750 shares held by the K.C. Barrows Trust and 3,750 shares held
by H.E. Barrows Trust. Mr. Barrows disclaims beneficial ownership of these
shares.
(8) Includes 90,000 options that are currently exercisable.
(9) Comprised of 33,984,540 shares held by Matrix Partners V, L.P. and
3,776,067 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. Messrs. Barrows and Ferri,
directors of Sycamore, are general partners of Matrix V Management Co.,
L.L.C. Messrs. Barrows and 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. The address of Matrix V Management Co., L.L.C. is 1000 Winter
Street, Suite 4500 Waltham, MA 02154.
(10) Includes an aggregate of 1,084,107 options that are currently
exercisable.
50
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 1,500,000,000 shares of common
stock, $.001 par value per share, and 5,000,000 shares of preferred stock,
$.01 par value per share. As of January 29, 2000, there were outstanding:
. 236,094,852 shares of common stock held by approximately 563
stockholders of record; and
. options to purchase an aggregate of 17,849,484 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 us in this
offering, there will be 248,489,559 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 us to register their shares of common stock
under the Securities Act of 1933, as amended in certain circumstances. See
"Shares Eligible for Future Sale."
Preferred Stock
Under the terms of our amended and restated certificate of incorporation,
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 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.
51
<PAGE>
Our amended and restated certificate of incorporation and amended and
restated by-laws 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.
Our amended and restated certificate of incorporation and amended and
restated by-laws also provide that:
. 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.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is EquiServe Limited
Partnership.
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have outstanding 248,489,559
shares of common stock, assuming the issuance of 12,394,707 shares in this
offering and no exercise of outstanding options after the date hereof, and
assuming no exercise of the underwriters' over-allotment option. Of these
shares, the 22,425,000 shares sold in our initial public offering, and all of
the 15,000,000 shares sold in this offering will be, freely tradable without
restriction or further registration under the Securities Act; provided,
however, that if shares are purchased by "affiliates" as that term is defined
in Rule 144, their sales of shares would be subject to certain limitations and
restrictions that are described below. Generally, the balance of our
outstanding shares of common stock are "restricted securities" under the
Securities Act, subject to the limitations and restrictions that are described
below.
Of our outstanding shares of common stock, 129,237,129 shares will be
subject to "lock-up" agreements after this offering for the periods described
below. All of our officers and directors and the selling stockholders, who
together in the aggregate currently hold 37.5% of our common stock, have
agreed not to sell or otherwise dispose of any of their shares for the 90-day
period following this offering. In addition, certain other of our stockholders
collectively currently hold an additional 10.9% of our outstanding shares of
common stock, which shares continue to be subject to lock-up agreements
entered into at the time of our initial public offering with the underwriters
of that offering. These shares will be released from lock-up on April 18,
2000. Morgan Stanley & Co. Incorporated may in its sole discretion, at any
time without notice, release all or any portion of the shares subject to any
of these lock-up agreements. The number of shares which become eligible for
sale at various dates are subject, in most cases, to the limitations of Rule
144.
In addition, as of January 29, 2000, options to purchase a total of
17,849,484 shares of common stock were outstanding, of which options to
purchase 8,850 shares were vested and not subject to a repurchase right in
favor of Sycamore. We filed a registration statement on Form S-8 under the
Securities Act on November 12, 1999 to register up to 58,147,659 shares of
common stock issuable under our compensatory stock plans or written
agreements. As a result, when the options are exercised and the shares
received on such exercise are vested, such shares will be freely tradeable
under the Securities Act; provided, however, that shares purchased by
"affiliates," as that term is defined in Rule 144, would be subject to
limitations and restrictions that are described below.
53
<PAGE>
Restricted Securities
We estimate that our outstanding shares of common stock that are
"restricted securities" under the Securities Act will become available for
resale in the public market as set forth in the table below:
<TABLE>
<CAPTION>
Approximate
Shares Eligible for
Relevant Dates Future Sale Comment
-------------- ------------------- -------
<S> <C> <C>
January 19, 2000 (90 Shares saleable under Rule 144 or Rule
days after effective 701. Includes some of the shares released
date of our initial 29,996,533 on the first release date under the
public offering) (2)... initial public offering lock-up that are
not also subject to lock-up in connection
with this offering
March 3, 2000 (one year Shares saleable under Rule 144. Includes
after date of original 8,985,186 the balance of the shares released on the
issue)................. first release date under the initial
public offering that are not also subject
to lock-up in connection with this
offering
April 18, 2000 (180 days Shares saleable under Rule 144 or Rule
after effective date of 701. Represents shares released on
our initial public expiration of lock-up in connection with
offering) (2).......... 26,965,355 our initial public offering that are not
also subject to lock-up in connection with
this offering
, 2000 (90 days All shares subject to lock-up in
after effective date of connection with this offering are
this offering) and released. Shares saleable under Rule 144
thereafter (1)(2)...... 93,286,588 or 701
</TABLE>
- --------
(1) Certain of the shares listed in the table as not salable until 90 days
after effectiveness of this offering may become salable earlier if
released from the lock-up by Morgan Stanley & Co. Incorporated.
(2) Reflects only shares that are vested and not subject to a repurchase right
in favor of Sycamore.
Since many of these shares were purchased at prices substantially below
current market prices, we believe that a significant number of these shares
will be sold when eligible for sale.
Rule 144
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
54
<PAGE>
such shares that does not exceed the greater of (1) one percent of the then
outstanding shares of common stock (approximately 2,484,896 shares immediately
after this offering) or (2) the average weekly trading volume in the common
stock on the Nasdaq National 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 the shares proposed to be sold 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 of the shares 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
In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who before October 21, 1999 purchased shares from us
in connection with a compensatory stock plan or other written agreement, or
who purchased shares from us after that date upon the exercise of options
granted before that date, are eligible to resell such shares in reliance upon
Rule 144 beginning January 19, 2000. If such person is not an affiliate, such
sale may be made subject only to the manner of sale provisions of Rule 144. If
such a person is an affiliate, such sale may be made under Rule 144 without
compliance with its one-year minimum holding period, but subject to the other
Rule 144 restrictions.
Registration Rights
At January 29, 2000, the holders of approximately 139,664,811 shares of
common stock are 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 after December 31, 2000 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 to include shares of such common stock therein. Additionally, commencing
April 24, 2000, 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.
55
<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, Credit Suisse First Boston, Lehman Brothers Inc.,
J. P. Morgan Securities Inc., Dain Rauscher Incorporated, FleetBoston
Robertson Stephens Inc., and Thomas Weisel Partners LLC, are acting as
representatives, have severally agreed to purchase, and Sycamore and the
selling stockholders have agreed to sell to them, an aggregate of 15,000,000
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..............................
Credit Suisse First Boston ....................................
Lehman Brothers Inc. ..........................................
J.P. Morgan Securities Inc. ...................................
Dain Rauscher Incorporated.....................................
FleetBoston Robertson Stephens Inc. ...........................
Thomas Weisel Partners LLC.....................................
----------
Total........................................................ 15,000,000
==========
</TABLE>
The underwriters are offering the shares subject to their acceptance of the
shares from us and the selling stockholders 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 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 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 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.
Sycamore has granted to the underwriters an option, exercisable for 30 days
from the date of this prospectus, to purchase up to 2,250,000 additional
shares of common stock at the public offering price set forth on the cover
page hereof, less underwriting discounts and commissions. The underwriters may
exercise this option solely for the purpose of covering over-allotments, if
any, made in connection with this offering of common stock. To the extent this
option is exercised, each underwriter will become obligated, subject to
certain conditions, to purchase approximately the same percentage of
additional shares of common stock as the number set forth next to the
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.
Sycamore, our directors and officers and each of the selling stockholders
have each agreed, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the underwriters, during the period ending 90 days
after the date of this prospectus, subject to certain exceptions, 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
56
<PAGE>
. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of
common stock,
whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise. The foregoing
restrictions shall not apply to (1) the sale of any shares to the
underwriters, (2) transactions relating to shares previously released from
lock-up agreements originally entered into in connection with our initial
public offering in October 1999 (3) transactions relating to shares of our
common stock or other securities acquired in open market transactions after
the date of this prospectus, (4) the sale or transfer of shares of common
stock in connection with the sale of Sycamore pursuant to a merger, sale of
stock or otherwise, (5) shares of common stock or options or warrants to
purchase shares of common stock issued by Sycamore to suppliers, developers,
consultants or other persons in connection with supply, development,
consulting, marketing or similar arrangements, provided that the recipients
agree to be bound by the foregoing restrictions, or (6) shares of common stock
issued by Sycamore in connection with the acquisition of any businesses,
products or technologies.
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
Our common stock is 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.
The underwriting agreement provides that Sycamore, the selling stockholders
and the underwriters will indemnify each other against certain liabilities,
including liabilities under the Securities Act.
Due to the fact that one of the representatives of the underwriters was
organized within the last three years, we are providing you the following
information. Thomas Weisel Partners LLC, one of the representatives of the
underwriters, was organized and registered as a broker-dealer in December
1998. Since December 1998, Thomas Weisel Partners has been named as a lead or
co-manager of, or as a syndicate member in, numerous public offerings of
equity securities. Thomas Weisel Partners does not have any material
relationship with us or any of our officers, directors or other controlling
persons, except with respect to its contractual relationship with us pursuant
to the underwriting agreement entered into in connection with this offering.
LEGAL MATTERS
The validity of the shares of common stock we are offering will be passed
upon for us by Skadden, Arps, Slate, Meagher & Flom 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.
57
<PAGE>
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. You may obtain
more information about the Public Reference Room by calling the Securities and
Exchange Commission at 1-800-SEC-0330. 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.
Sycamore Networks is subject to the information and periodic reporting
requirements of the Securities Exchange Act of 1934, and, in accordance with
the requirements of the Securities Exchange Act of 1934, files periodic
reports, proxy statements and other information with the Securities and
Exchange Commission. These periodic reports, proxy statements and other
information will be available for inspection and copying at the regional
offices, public reference facilities and web site of the Securities and
Exchange Commission referred to above.
58
<PAGE>
SYCAMORE NETWORKS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheets at July 31, 1998, July 31, 1999 and January 29,
2000 (unaudited).......................................................... F-3
Consolidated Statements of Operations for the period from inception
(February 17, 1998) through July 31, 1998, the year ended July 31, 1999
and the six month periods ended January 30, 1999 and January 29, 2000
(unaudited)............................................................... F-4
Consolidated Statements of Stockholders' Equity/(Deficit) for the period
from inception (February 17, 1998) through July 31, 1998, the year ended
July 31, 1999 and the six month period ended January 29, 2000
(unaudited)............................................................... F-5
Consolidated Statements of Cash Flows for the period from inception
(February 17, 1998) through July 31, 1998, the year ended July 31, 1999
and the six month periods ended January 30, 1999 and January 29, 2000
(unaudited)............................................................... F-6
Notes to Consolidated 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.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
August 23, 1999 (Except as to the
third paragraph of Note 6
for which the date is February 11, 2000)
F-2
<PAGE>
SYCAMORE NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
July 31, July 31, January 29,
1998 1999 2000
-------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents..................... $1,197 $21,969 $137,943
Marketable securities......................... 3,082 7,020 150,633
Accounts receivable........................... -- 11,410 11,980
Inventories................................... -- 6,608 25,805
Prepaids and other current assets............. 200 5,153 3,180
------ ------- --------
Total current assets........................... 4,479 52,160 329,541
Property and equipment, net.................... 500 5,288 11,704
Other assets................................... 102 464 3,433
------ ------- --------
Total assets................................... $5,081 $57,912 $344,678
====== ======= ========
Liabilities, Redeemable Convertible Preferred
Stock and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of notes payable.............. $ 1,097
Accounts payable.............................. $ 42 5,750 $ 28,218
Accrued compensation.......................... 30 1,403 1,760
Accrued expenses.............................. 66 1,751 4,354
Other current liabilities..................... -- 1,709 3,166
------ ------- --------
Total current liabilities...................... 138 11,710 37,498
Notes payable.................................. -- 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; none authorized,
issued and outstanding at January 29, 2000.... 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; none authorized,
issued and outstanding at January 29, 2000.... -- 12,625 --
Series C Redeemable Convertible Preferred Stock
$.01 par value; 2,500,000 shares authorized,
issued and outstanding at July 31, 1999; none
authorized, issued and outstanding at January
29, 2000...................................... -- 20,000 --
Series D Redeemable Convertible Preferred Stock
$.01 par value; 692,201 authorized, issued and
outstanding at July 31, 1999; none authorized,
issued and outstanding at January 29, 2000.... -- 15,000 --
Stockholders' equity (deficit):
Preferred stock, $.01 par value, 5,000,000
shares authorized, none issued and
outstanding at January 29, 2000.............. -- -- --
Common stock, $.001 par value; 91,000,000 and
1,500,000,000 shares authorized at July 31,
1998 and 1999 and January 29, 2000,
respectively; 21,105,000, 69,819,336 and
236,094,852 shares issued and outstanding at
July 31, 1998 and 1999 and January 29, 2000,
respectively................................. 21 69 236
Additional paid-in capital.................... 173 30,780 384,821
Accumulated deficit........................... (693) (20,183) (27,534)
Notes receivable.............................. -- (360) (460)
Deferred compensation......................... (179) (23,929) (49,852)
Accumulated other comprehensive loss.......... -- -- (31)
------ ------- --------
Total stockholders' equity (deficit)........... (678) (13,623) 307,180
------ ------- --------
Total liabilities, redeemable convertible
preferred stock and stockholders' equity
(deficit)..................................... $5,081 $57,912 $344,678
====== ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
SYCAMORE NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Period from
Inception Six Months Ended
(February 17, 1998) -----------------------
through July 31, Year Ended January 30, January 29,
1998 July 31, 1999 1999 2000
------------------- ------------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues................ $ -- $ 11,330 $ -- $ 48,559
Cost of revenues
(exclusive of the non-
cash stock compensation
expense of $0, $101,
$20 and $590, at July
31, 1998, July 31,
1999, January 30, 1999,
and January 29, 2000).. -- 8,486 239 25,736
----- -------- ------- --------
Gross profit (loss)..... -- 2,844 (239) 22,823
Operating expenses:
Research and development
(exclusive of the non-
cash stock compensation
expense of $5, $736,
$91 and $2,136, at July
31, 1998, July 31,
1999, January 30, 1999,
and January 29, 2000).. 497 13,955 3,238 18,019
Sales and marketing
(exclusive of the non-
cash stock compensation
expense of $0, $346,
$39 and $2,527, at July
31, 1998, July 31,
1999, January 30, 1999,
and January 29, 2000).. 92 4,064 422 8,395
General and
administrative
(exclusive of the non-
cash stock compensation
expense of $0, $2,286,
$60 and $1,102, at July
31, 1998, July 31,
1999, January 30, 1999,
and January 29, 2000).. 199 1,405 373 1,910
Amortization of stock
compensation........... 5 3,469 210 6,355
----- -------- ------- --------
Total operating
expenses............... 793 22,893 4,243 34,679
----- -------- ------- --------
Loss from operations.... (793) (20,049) (4,482) (11,856)
Interest income, net.... 100 559 193 4,505
----- -------- ------- --------
Net loss................ $(693) $(19,490) $(4,289) $ (7,351)
===== ======== ======= ========
Basic and diluted net
loss per share......... $(.18) $ (2.09) $ (.47) $ (.07)
Weighted average shares
used in computing basic
and diluted net loss
per share.............. 3,753 9,324 9,160 107,555
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
SYCAMORE NETWORKS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Accumulated Total
Common Stock Additional Other Stockholders'
--------------- Paid-in Accumulated Notes Deferred Comprehensive Equity
Shares Amount Capital Deficit Receivable Compensation Loss (Deficit)
------- ------ ---------- ----------- ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock................... 21,105 $ 21 $ (11) $ -- $ -- $ -- $ -- $ 10
Deferred compensation
expense associated with
equity awards........... -- -- 184 -- -- (184) -- --
Amortization of deferred
compensation............ -- -- -- -- -- 5 -- 5
Net loss................ -- -- -- (693) -- -- -- (693)
------- ---- -------- -------- ----- -------- ---- --------
Balance, July 31, 1998.. 21,105 21 173 (693) -- (179) -- (678)
------- ---- -------- -------- ----- -------- ---- --------
Exercise of stock
options................. 18,222 18 2,923 -- -- -- -- 2,941
Issuance of common
stock................... 30,492 30 465 -- -- -- -- 495
Deferred compensation
expense associated with
equity awards........... -- -- 25,159 -- -- (25,159) -- --
Issuance of equity
awards in exchange for
services................ -- -- 2,060 -- -- -- -- 2,060
Amortization of deferred
compensation............ -- -- -- -- -- 1,409 -- 1,409
Issuance of common stock
in exchange for notes
receivable.............. -- -- -- -- (360) -- -- (360)
Net loss................ -- -- -- (19,490) -- -- -- (19,490)
------- ---- -------- -------- ----- -------- ---- --------
Balance, July 31, 1999.. 69,819 69 30,780 (20,183) (360) (23,929) -- (13,623)
------- ---- -------- -------- ----- -------- ---- --------
Exercise of stock
options................. 2,181 2 4,067 -- -- -- -- 4,069
Issuance of common
stock, net.............. 22,425 23 262,095 -- -- -- -- 262,118
Conversion of preferred
stock into common
stock................... 141,850 142 55,629 -- -- -- -- 55,771
Deferred compensation
expense associated with
equity awards........... -- -- 31,201 -- -- (31,201) -- --
Issuance of equity
awards in exchange for
services................ -- -- 1,077 -- -- -- -- 1,077
Amortization of deferred
compensation............ -- -- -- -- -- 5,278 -- 5,278
Issuance of common stock
in exchange for notes
receivable.............. -- -- -- -- (100) -- -- (100)
Purchase and retirement
of treasury shares...... (180) -- (28) -- -- -- -- (28)
Unrealized loss on
marketable securities... -- -- -- -- -- -- (31) (31)
Net loss................ -- -- -- (7,351) -- -- -- (7,351)
------- ---- -------- -------- ----- -------- ---- --------
Balance, January 29,
2000 (unaudited)........ 236,095 $236 $384,821 $(27,534) $(460) $(49,852) $(31) $307,180
======= ==== ======== ======== ===== ======== ==== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
SYCAMORE NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Period from
Inception Six Months Ended
(February 17, -----------------------
1998) through Year Ended January 30, January 29,
July 31, 1998 July 31, 1999 1999 2000
------------- ------------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss.................. $ (693) $(19,490) $(4,289) $ (7,351)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation and
amortization............ 27 948 182 2,180
Amortization of stock
compensation............ 5 3,469 210 6,355
Changes in operating assets
and liabilities:
Accounts receivable...... -- (11,410) -- (570)
Inventories.............. -- (6,608) -- (19,197)
Prepaids and other
current assets.......... (75) (4,953) (29) 1,973
Accounts payable......... 42 5,708 450 22,468
Accrued expenses and
other current
liabilities............. 96 4,767 141 4,417
------ -------- ------- --------
Net cash provided by (used
in) operating activities.. (598) (27,569) (3,335) 10,275
------ -------- ------- --------
Cash flows from investing
activities:
Purchases of property and
equipment............... (528) (5,736) (1,304) (8,596)
Purchases of marketable
securities.............. (3,082) (10,115) (3,099) (150,664)
Maturities of marketable
securities.............. -- 6,177 3,078 7,020
Increase in other
assets.................. (102) (362) (105) (2,969)
------ -------- ------- --------
Net cash used in investing
activities................ (3,712) (10,036) (1,430) (155,209)
------ -------- ------- --------
Cash flows from financing
activities:
Proceeds from issuance of
redeemable convertible
preferred stock, net.... 5,496 50,150 14,795 --
Proceeds from issuance of
common stock, net....... 11 3,076 189 266,059
Proceeds from notes
payable................. -- 5,184 1,000 --
Payments on notes
payable................. -- (33) -- (5,151)
------ -------- ------- --------
Net cash provided by
financing activities...... 5,507 58,377 15,984 260,908
------ -------- ------- --------
Net increase in cash and
cash equivalents.......... 1,197 20,772 11,219 115,974
Cash and cash equivalents,
beginning of period....... -- 1,197 1,197 21,969
------ -------- ------- --------
Cash and cash equivalents,
end of period............. $1,197 $ 21,969 $12,416 $137,943
====== ======== ======= ========
Supplemental cash flow
information:
Cash paid for interest... -- $ 170 $ 28 $ 139
Supplementary non-cash
activity:
Preferred stock note
receivable.............. $ 125 -- -- --
Issuance of common stock
in exchange for notes
receivable.............. -- $ 360 -- $ 100
Conversion of preferred
stock into common
stock................... -- -- -- $ 55,771
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
SYCAMORE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the six months ended January 30, 1999 and January 29, 2000 is
unaudited)
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.
The Company's ultimate success is dependent upon its ability 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:
Basis of Presentation
The consolidated financial statements include the accounts of Sycamore
Networks, Inc. and its wholly owned subsidiaries. All intercompany balances
and transactions have been eliminated.
Interim Financial Information
The financial information at January 29, 2000 and for the six months ended
January 30, 1999 and January 29, 2000 is unaudited, but includes all
adjustments, consisting only of normal recurring adjustments, the Company
considers necessary for a fair statement of its financial position, operating
results, and cash flows for the interim date and periods presented. Results of
the six-month period ended January 29, 2000 are not necessarily indicative of
the results to be expected for the entire fiscal year or future periods.
Cash Equivalents and Marketable Securities
Cash equivalents are short-term, highly liquid investments with original
maturity dates of three months or less at the date of acquisition. Cash
equivalents are carried at cost, which approximates fair market value. The
Company's marketable securities are classified as available-for-sale and are
recorded at fair value with any unrealized gain or loss recorded as an element
of stockholders' equity (deficit). As of July 31, 1999 and 1998, the fair
value of marketable securities, which were comprised of commercial paper and
certificate of deposits, approximated amortized cost. As of January 29, 2000,
marketable securities consisted of:
<TABLE>
<CAPTION>
Amortized Cost Fair Market Value Unrealized Gain/(Loss)
-------------- ----------------- ----------------------
<S> <C> <C> <C>
Certificate of
Deposits............... $ 1,999 $ 2,001 $ 2
Commericial Paper....... 118,248 118,213 (35)
U.S. Government......... 30,417 30,419 2
-------- -------- ----
Total................. $150,664 $150,633 $(31)
======== ======== ====
</TABLE>
The fair value of marketable securities was determined based on quoted
market prices at the reporting date for those instruments.
F-7
<PAGE>
SYCAMORE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended January 30, 1999 and January 29, 2000 is
unaudited)
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.
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
Shorter of lease term or useful life
Leasehold improvements............... 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.
F-8
<PAGE>
SYCAMORE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended January 30, 1999 and January 29, 2000 is
unaudited)
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.
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 Loss
The Company reports comprehensive 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. For the six months ended January 29, 2000,
comprehensive net loss was $7,382,000.
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 year ended July 31, 1999 and the six
months ended January 30, 1999 and January 29, 2000 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.
The Company effected a three-for-one stock split paid as a 200% stock
dividend on February 11, 2000 to stockholders of record as of February 4,
2000. This stock split has been reflected in the consolidated financial
statements for all periods presented.
F-9
<PAGE>
SYCAMORE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended January 30, 1999 and January 29, 2000 is
unaudited)
The following table sets forth the computation of basic and diluted net
loss per share:
<TABLE>
<CAPTION>
Period from
Inception Six Months Ended
(February 17, 1998) -----------------------
through July 31, Year Ended January 30, January 29,
1998 July 31, 1999 1999 2000
------------------- ------------- ----------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Numerator:
Net loss................ $ (693) $(19,490) $ (4,289) $ (7,351)
Denominator
Historical:
Weighted average common
shares outstanding..... 19,521 45,585 39,112 160,773
Weighted average common
shares outstanding
subject to repurchase.. (15,768) (36,261) (29,952) (53,218)
-------- -------- -------- --------
Denominator for basic
and diluted
calculation............ 3,753 9,324 9,160 107,555
-------- -------- -------- --------
Basic and diluted net
loss per share......... $ (.18) $ (2.09) $ (.47) $ (.07)
======== ======== ======== ========
Pro Forma:
Historical weighted
average common shares
outstanding............ 3,753 9,324 9,160 107,555
Weighted average number
of shares issued upon
conversion of
redeemable convertible
preferred stock........ 52,515 105,111 78,495 64,689
-------- -------- -------- --------
Shares used in computing
pro forma basic and
diluted net loss per
share (unaudited)...... 56,268 114,435 87,655 172,244
======== ======== ======== ========
Pro forma basic and
diluted net loss per
share (unaudited)...... $ (.01) $ (.17) $ (.05) $ (.04)
======== ======== ======== ========
</TABLE>
Options to purchase 5,058,900, 999,000 and 17,849,484 shares of common
stock at average exercise prices of $.45, $.04 and $19.37 have not been
included in the computation of diluted net loss per share, for the year ended
July 31, 1999 and for the six months ended January 30, 1999 and January 29,
2000, respectively, as their effect would have been anti-dilutive.
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 CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended January 30, 1999 and January 29, 2000 is
unaudited)
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities," which establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, (collectively referred to
as derivatives) and for hedging activities. The Company will adopt SFAS No.
133 as required by SFAS No. 137, "Deferral of the effective date of the FASB
Statement No. 133," in fiscal year 2001. The adoption of SFAS No. 133 is not
currently expected to have an impact on our financial condition or results of
operations.
3. Inventory
Inventory consisted of the following (in thousands):
<TABLE>
<CAPTION>
July 31, 1999 January 29, 2000
------------- ----------------
<S> <C> <C>
Raw materials................................. $2,164 $ 5,793
Work in process............................... 3,026 5,475
Finished goods................................ 1,418 14,537
------ -------
$6,608 $25,805
====== =======
</TABLE>
4. Property and Equipment
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
July 31, 1998 July 31, 1999 January 29, 2000
------------- ------------- ----------------
<S> <C> <C> <C>
Computer software and
equipment.................... $500 $5,433 $12,308
Furniture and office
equipment.................... 27 221 759
Leasehold improvements........ -- 609 1,016
---- ------ -------
527 6,263 14,083
Less accumulated depreciation
and amortization............. (27) (975) (2,379)
---- ------ -------
$500 $5,288 $11,704
==== ====== =======
</TABLE>
Depreciation and amortization expense was $27,000, $948,000 and $1,404,000
for the period from inception (February 17, 1998) through July 31, 1998, for
the year ended July 31, 1999 and for the six months ended January 29, 2000,
respectively.
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>
F-11
<PAGE>
SYCAMORE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended January 30, 1999 and January 29, 2000 is
unaudited)
Letter of Credit
Included in prepaid expenses and other current assets at July 31, 1999 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 expired 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, were as follows: $1,097,000
in 2000; $1,795,000 in 2001; $1,562,000 in 2002 and $697,000 in 2003. In
October 1999, the Company paid all outstanding debt with the proceeds of the
initial public offering.
6. Stockholders' Equity
Common Stock
On October 21, 1999, Sycamore completed its initial public offering ("IPO")
in which it sold 22,425,000 shares of common stock at a price to the public of
$12.67 per share. The net proceeds of the IPO, after deducting underwriting
discounts and other offering expenses, were approximately $263.0 million. Upon
the closing of the IPO, all redeemable convertible preferred Stock (Series A,
B, C and D) automatically converted to 141,849,675 shares of common stock.
In August 1999, the shareholders approved amendments to the Company's
Articles of Incorporation to increase the authorized shares of the Company's
common stock from 91,000,000 to 250,000,000 shares. This amendment was
effective upon the closing of the Company's IPO. In January 2000, the
stockholders approved amendments to the Company's Articles of Organization to
increase the authorized number of shares of the Company's common stock from
250,000,000 to 1,500,000,000.
The Company effected the following stock splits in the form of stock
dividends: 3-for-1 in August 1999 and 3-for-1 in February 2000. All common
shares, common options and per share amounts in the accompanying financial
statements have been adjusted to reflect the stock splits.
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 CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended January 30, 1999 and January 29, 2000 is
unaudited)
1998 and 1999 Stock Incentive Plans
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
79,695,000 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 1,500,000 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, 17,936,100 shares related to immediate option exercises are
subject to repurchase by the Company at per share prices ranging from $.01 to
$1.00 and 55,916,100 were reserved for future issuance. As of January 29,
2000, 18,093,906 shares related to immediate option exercises are subject to
repurchase by the Company at per share prices ranging from $.01 to $12.67.
In August 1999, the Board approved the 1999 Stock Incentive Plan. The terms
and conditions of the 1999 Stock Incentive Plan are similar to the 1998 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 9,000,000 or 5% of the outstanding shares on that date. As of
January 29, 2000, there were no shares related to immediate option exercises
subject to repurchase by the Company.
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
22,095,000, and 29,502,936 shares of restricted stock, of which 5,557,500
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 and January 29, 2000 was 51,597,936, of which 42,296,436 and
33,407,575 were subject to repurchase at their original issuance prices
ranging from $.01 to $.11.
1999 Employee Stock Purchase Plan
In August 1999, the Board approved the Employee Stock Purchase Plan. A
total of 2,250,000 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
F-13
<PAGE>
SYCAMORE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended January 30, 1999 and January 29, 2000 is
unaudited)
exceed amounts allowed by the Internal Revenue Code. On August 1 of each year,
commencing with August 1, 2000, the aggregate number of common shares
available for purchase during the life of the Employee Stock Purchase Plan
shall automatically be increased by the number of common shares necessary to
cause the number of common shares available for purchase to be 2,250,000. The
initial offering period commenced on the effectiveness of the IPO and will end
on April 30, 2000.
1999 Non-Employee Director Option Plan
In August 1999, the Board approved the 1999 Non-Employee Director Option
Plan. A total of 1,500,000 shares of common stock have been reserved for
issuance under this plan. As of August 1 of each year, commencing with August
1, 2000, the aggregate number of common shares available for the grant of
options under this plan shall automatically be increased by the number of
common shares necessary to cause the total number of common shares available
for grant to be 1,500,000. The Company granted 270,000 options with a vesting
period of three years, as of January 29, 2000.
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, the year ended July 31, 1999 and the six months ended January 30, 1999
and January 29, 2000, the Company recorded deferred stock compensation of
$184,000, $25,159,000, $2,922,000 and $31,201,000, respectively, representing
the difference between the deemed fair market value of the common stock on the
date of grant and the exercise price. Compensation related to options and
restricted shares which vest over time was recorded as a component of
stockholders' equity (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, the year ended July 31, 1999 and the six months ended
January 30, 1999 and January 29, 2000, the Company recorded compensation
expense relating to these options and restricted shares totaling $5,000,
$1,409,000, $210,000 and $5,278,000, respectively.
Non-Employee Stock Compensation
During the year ended July 31, 1999, the Company granted 1,230,300 shares
of common stock awards which were fully vested by July 31, 1999 to non-
employees and recognized compensation expense of $2,060,000. During the six
months ended January 29, 2000, the Company granted 198,000 shares of common
stock awards which were fully vested by January 29, 2000 to non-employees and
recognized compensation expense of $1,077,000. The fair value of each stock
option was estimated using the Black-Scholes option pricing model with the
following weighted-average assumptions for the year-ended July 31, 1999 and
the six months ended January 29, 2000: a weighted-average risk free interest
rate of 5.2% and 6.5%, a weighted-average expected option life of 4 and 3
years, no dividend yield and a 60% and 84% volatility, respectively.
F-14
<PAGE>
SYCAMORE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended January 30, 1999 and January 29, 2000 is
unaudited)
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) Year Ended
to July 31, 1998 July 31, 1999
--------------------- -------------
<S> <C> <C>
As reported
Net loss................ $(693) $(19,490)
Basic and diluted net
loss per share......... $(.18) $ (2.09)
Pro forma
Net loss................ $(807) $(21,314)
Basic and diluted net
loss per share......... $(.22) $ (2.29)
</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 $.05 and $.35 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 stock plans are summarized
as follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
----------- ----------------
<S> <C> <C>
Outstanding at July 31, 1998................... -- --
Options granted................................ 23,280,300 $ .16
Options exercised.............................. (18,221,400) .22
Options cancelled.............................. -- --
-----------
Outstanding at July 31, 1999................... 5,058,900 .45
===========
Options granted................................ 15,079,425 23.04
Options exercised.............................. (2,180,841) 1.87
Options cancelled.............................. (108,000) .33
-----------
Outstanding at January 29, 2000................ 17,849,484 $19.37
===========
</TABLE>
F-15
<PAGE>
SYCAMORE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended January 30, 1999 and January 29, 2000 is
unaudited)
The following table summarizes information about stock options outstanding
at July 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding
---------------------------------------
Vested Options Exercisable
Number of Weighted Avg. Weighted Avg. -------------------------------
Range of Shares Remaining Exercise Number Weighted Avg.
Exercise Prices Outstanding Contract Life Price Exercisable Exercise Price
--------------- ----------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$ .04 122,400 9.55 $ .04 90,000 $.04
.11 1,754,100 9.82 .11 90,000 .11
.33 1,310,697 9.94 .33 270,000 .33
.67 640,503 9.98 .67 -- --
1.00 1,231,200 10.00 1.00 -- --
--------- --------------
$.04-
$1.00 5,058,900 9.91 $ .45 450,000 $.23
</TABLE>
The following table summarizes information about stock options outstanding
at January 29, 2000:
<TABLE>
<CAPTION>
Options Outstanding
-------------------------------------------
Number Vested Options Exercisable
Outstanding Weighted Average Weighted ----------------------------
Range of As of Remaining Average Number Weighted Average
Exercise Prices 1/29/00 Contractual Life Exercise Price Exercisable Exercise Price
--------------- ----------- ---------------- -------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.04-
0.33 2,336,697 9.36 $ 0.18 3,150 $ 0.18
0.67-
1.00 1,811,700 9.49 0.89 -- 0.89
1.33-
1.67 2,036,556 9.53 1.50 -- 1.50
2.00-
2.67 2,218,038 9.58 2.37 -- 2.37
3.00-
3.83 2,232,867 9.63 3.35 750 3.35
4.33-
5.83 1,855,182 9.70 5.22 -- 5.22
12.67 1,972,107 9.72 12.67 -- 12.67
59.02-
83.00 1,816,737 9.92 80.48 450 80.48
85.90-
103.79 1,518,600 9.94 93.24 4,500 93.24
105.38 51,000 9.91 105.38 -- 105.38
---------- -----
$ 0.04-
$105.38 17,849,484 9.64 $ 19.37 8,850 $ 19.37
</TABLE>
Stockholder Notes Receivable
At July 31, 1999 and January 29, 2000, the Company held notes receivable in
the amount of $360,000 and $460,000, respectively, 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' equity
(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 IPO of shares on a national
exchange at the IPO price 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.
F-16
<PAGE>
SYCAMORE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended January 30, 1999 and January 29, 2000 is
unaudited)
7. Preferred Stock
The Company's Board authorized 15,792,201 shares of Series A, Series B,
Series C and Series D preferred stock ("Series A, Series B, Series C, Series
D") at $.01 par value of which 15,761,075 were 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.
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.
All shares of redeemable convertible preferred stock converted into
141,849,675 shares of common stock at the time of our initial public offering.
The terms of Series A, Series B, Series C and Series D redeemable
convertible preferred stock were 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 141,849,675 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 $3.22 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.
Upon the closing of the IPO, all redeemable convertible preferred Stock
(Series A, B, C and D) automatically converted to 141,849,675 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.
F-17
<PAGE>
SYCAMORE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended January 30, 1999 and January 29, 2000 is
unaudited)
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.
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>
In August 1999, the shareholders of the Company approved amendments to the
Company's Articles of Incorporation to authorize the issuance of 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 without stockholder
approval. This amendment was effective upon the closing of the Company's IPO.
F-18
<PAGE>
SYCAMORE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended January 30, 1999 and January 29, 2000 is
unaudited)
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 are as follows (in thousands):
<TABLE>
<CAPTION>
July 31, 1999 July 31, 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. To
date, the Company has made no contributions to the plan.
F-19
<PAGE>
Inside back cover shows Sycamore logo.
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............................................... $496,386
NASD filing fee.................................................... $ 30,500
Nasdaq National Market listing fee................................. $ 17,500
Printing and engraving expenses.................................... $
Legal fees and expenses............................................ $
Accounting fees and expenses....................................... $
Blue Sky fees and expenses (including legal fees).................. $
Transfer agent and registrar fees and expenses..................... $
Miscellaneous...................................................... $
--------
Total............................................................ $
========
</TABLE>
Item 14. Indemnification of Directors and Officers.
Article SEVENTH 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 EIGHTH 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.
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
II-1
<PAGE>
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 EIGHTH 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 Registrant has entered into indemnification agreements with each of its
directors and officers. These agreements may require the Registrant, among
other things, to indemnify directors and officers against certain liabilities
that may arise by reason of their status or service as directors and officers
and to advance their expenses incurred as a result of any proceeding against
them as to which they could be indemnified.
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. The share
numbers summarized below have been adjusted to reflect the 3-for-1 stock split
of the Registrant's common stock that took place on February 11, 2000.
(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 46,040,436
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 5,557,500 shares of its
common stock for an aggregate purchase price of $353,250.
II-2
<PAGE>
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.
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 October 21, 1999, the Registrant granted
stock options to purchase 34,703,388 shares of common stock at
exercise prices ranging from $.01 to $12.67 per share to
employees, consultants and directors pursuant to its 1998 Stock
Incentive Plan, as amended.
2. From inception through October 25, 1999, the Registrant issued
and sold an aggregate of 20,396,841 shares of its common stock to
employees, consultants and directors for aggregate consideration
of $7,006,178 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 Amended and Restated Certificate of Incorporation of the Company
3.2 Certificate of Amendment to the Amended and Restated Certificate
of Incorporation of the Company
3.3 Amended and Restated By-Laws of the Company
**4.1 Specimen common stock certificate
4.2 See Exhibits 3.1, 3.2 and 3.3 for provisions of the Certificate of
Incorporation and By-Laws of the Company defining the rights of
holders of common stock of the Company
**4.3 Second Amended and Restated Investor Rights Agreement dated
February 26, 1999, as amended by Amendment No. 1 dated as of July
23, 1999
4.4 Amendment No. 2 dated as of August 5, 1999 to the Second Amended
and Restated Investor Rights Agreement dated February 26, 1999.
4.5 Amendment No. 3 dated as of September 20, 1999 to the Second
Amended and Restated Investor Rights Agreement dated February 26,
1999.
4.6 Amendment No. 4 dated as of February 11, 2000 to the Second
Amended and Restated Investor Rights Agreement dated February 26,
1999.
*5.1 Opinion of Skadden Arps Slate Meagher & Flom LLP
**10.1 1998 Stock Incentive Plan, as amended
**10.2 1999 Non-Employee Directors' Option Plan
**+10.3 Purchase and License Agreement between the Company and Williams
Communications, Inc.
***++10.4 Addendum to Purchase and License Agreement between the Company and
Williams Communications, Inc. dated November 21, 1999
++10.5 Manufacturing Services Agreement between the Company and Celestica
Corporation.
**10.6 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
**10.7 1999 Stock Incentive Plan
**10.8 Lease Agreement between WA/TIB Real Estate Limited Partnership and
the Company effective September 20, 1999
***10.9 Form of Indemnification Agreement between the Company, the
Directors of the Company and certain officers of the Company
***10.10 Form of Change in Control Agreement between the Company and
executive officers of the Company
***10.11 Promissory Note and Pledge Agreement between the Company and Kevin
Oye, Vice President of Business Development
10.12 Promissory Note between the Company and Eric Swanson
10.13 Promissory Note between the Company and Eric Swanson
23.1 Consent of PricewaterhouseCoopers LLP
*23.2 Consent of Skadden Arps Slate Meagher & Flom LLP (included in
Exhibit 5.1)
24.1 Powers of Attorney (see signature page)
27.1 Financial Data Schedule
27.2 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
** Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration Statement No. 333-84635).
*** Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended October 31, 1999 filed with the Commission
on December 13, 1999.
+ Confidential treatment granted 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.
++ 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.
II-4
<PAGE>
(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.
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
certifies that it has reasonable grounds to believe it meets all the
requirements for filing on Form S-1 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Chelmsford, Massachusetts, on this 17th day of February, 2000.
SYCAMORE NETWORKS, INC.
/s/ Daniel E. Smith
By: _________________________________
Daniel E. Smith
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the persons whose signatures
appear below, constitute and appoint Gururaj Deshpande, Daniel E. Smith and
Frances M. Jewels, and each of them individually, as their true and lawful
attorneys-in-fact and agents, with full power and substitution and
resubstitution, for them and in their names, places and steads, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, and to file the same, with all exhibits thereto, and the other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as they might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or
their or his or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on this 17th day of February, 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/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>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
--------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of the Company
3.2 Certificate of Amendment to the Amended and Restated Certificate
of Incorporation of the Company
3.3 Amended and Restated By-Laws of the Company
**4.1 Specimen common stock certificate
4.2 See Exhibits 3.1, 3.2 and 3.3 for provisions of the Certificate of
Incorporation and By-Laws of the Company defining the rights of
holders of common stock of the Company
**4.3 Second Amended and Restated Investor Rights Agreement dated
February 26, 1999, as amended by Amendment No. 1 dated as of July
23, 1999
4.4 Amendment No. 2 dated as of August 5, 1999 to the Second Amended
and Restated Investor Rights Agreement dated February 26, 1999.
4.5 Amendment No. 3 dated as of September 20, 1999 to the Second
Amended and Restated Investor Rights Agreement dated February 26,
1999.
4.6 Amendment No. 4 dated as of February 11, 2000 to the Second
Amended and Restated Investor Rights Agreement dated February 26,
1999.
*5.1 Opinion of Skadden Arps Slate Meagher & Flom LLP
**10.1 1998 Stock Incentive Plan, as amended
**10.2 1999 Non-Employee Directors' Option Plan
**+10.3 Purchase and License Agreement between the Company and Williams
Communications, Inc.
***++10.4 Addendum to Purchase and License Agreement between the Company and
Williams Communications, Inc. dated November 21, 1999
++10.5 Manufacturing Services Agreement between the Company and Celestica
Corporation.
**10.6 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
**10.7 1999 Stock Incentive Plan
**10.8 Lease Agreement between WA/TIB Real Estate Limited Partnership and
the Company effective September 20, 1999
***10.9 Form of Indemnification Agreement between the Company, the
Directors of the Company and certain officers of the Company
***10.10 Form of Change in Control Agreement between the Company and
executive officers of the Company
***10.11 Promissory Note and Pledge Agreement between the Company and Kevin
Oye, Vice President of Business Development
10.12 Promissory Note between the Company and Eric Swanson
10.13 Promissory Note between the Company and Eric Swanson
23.1 Consent of PricewaterhouseCoopers LLP
*23.2 Consent of Skadden Arps Slate Meagher & Flom LLP (included in
Exhibit 5.1)
24.1 Powers of Attorney (see signature page)
27.1 Financial Data Schedule
27.2 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
** Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration Statement No. 333-84635).
*** Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended October 31, 1999 filed with the Commission
on December 13, 1999.
+ Confidential treatment granted 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.
++ Confidential treatment requested for certain portions of this Exhibit
pursuant to Rule 406 promulgated under the Securities Act, which portions
are omitted and filed separately with the Securities and Exchange
Commission.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SYCAMORE NETWORKS, INC.
Sycamore Networks, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, does
hereby certify as follows:
1. The Corporation filed its original Certificate of Incorporation
with the Secretary of State of the State of Delaware (the "Delaware Secretary")
on February 17, 1998. A Certificate of Amendment to Certificate of
Incorporation was filed with the Delaware Secretary on October 29, 1998. A
Certificate of Amendment to Certificate of Incorporation was filed with the
Delaware Secretary on December 3, 1998. A Certificate of Amendment to
Certificate of Incorporation was filed with the Delaware Secretary on February
25, 1999. A Certificate of Amendment to Certificate of Incorporation was filed
with the Delaware Secretary on July 23, 1999. A Certificate of Amendment to the
Certificate of Incorporation was filed with the Delaware Secretary of State on
August 27, 1999.
2. At a duly called meeting of the Board of Directors of the
Corporation at which a quorum was present at all times, a resolution was duly
adopted, pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, setting forth an Amended and Restated Certificate of
Incorporation of the Corporation and declaring said Amended and Restated
Certificate of Incorporation advisable. The stockholders of the Corporation
duly approved said proposed Amended and Restated Certificate of Incorporation by
written consent in accordance with Sections 228, 242 and 245 of the General
Corporation Law of the State of Delaware, and written notice of such consent has
been given to all stockholders who have not consented in writing to said
restatement. The resolution setting forth the Amended and Restated Certificate
of Incorporation is as follows:
RESOLVED: That the Certificate of Incorporation of the Corporation, be and
- --------
hereby is amended and restated in its entirety so that the same
shall read as follows:
FIRST. The name of the Corporation is:
Sycamore Networks, Inc.
SECOND. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or promoted
by the Corporation is as follows:
<PAGE>
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 255,000,000 shares, consisting of
(i) 250,000,000 shares of Common Stock, $.001 par value per share ("Common
Stock"), and (ii) 5,000,000 shares of Preferred Stock, $.01 par value per share
("Preferred Stock").
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
------------
1. General. The voting, dividend and liquidation rights of the holders
-------
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one vote for
------
each share held at all meetings of stockholders. There shall be no cumulative
voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. Dividends. Dividends may be declared and paid on the Common Stock
---------
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
-----------
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
---------------
Preferred Stock may be issued from time to time in one or more series, each
of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series,
-2-
<PAGE>
by resolution or resolutions providing for the issue of the shares thereof, to
determine and fix such voting powers, full or limited, or no voting powers, and
such designations, preferences and relative participating, optional or other
special rights, and qualifications, limitations or restrictions thereof,
including without limitation thereof, dividend rights, conversion rights,
redemption privileges and liquidation preferences, as shall be stated and
expressed in such resolutions, all to the full extent now or hereafter permitted
by the General Corporation Law of Delaware. Without limiting the generality of
the foregoing, the resolutions providing for issuance of any series of Preferred
Stock may provide that such series shall be superior or rank equally or be
junior to the Preferred Stock of any other series to the extent permitted by
law. Except as otherwise provided in this Certificate of Incorporation, no vote
of the holders of the Preferred Stock or Common Stock shall be a prerequisite to
the designation or issuance of any shares of any series of the Preferred Stock
authorized by and complying with the conditions of this Certificate of
Incorporation, the right to have such vote being expressly waived by all present
and future holders of the capital stock of the Corporation.
FIFTH. The Corporation shall have a perpetual existence.
SIXTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided that the Board of Directors is expressly
authorized to adopt, amend or repeal the By-Laws of the Corporation.
SEVENTH. Except to the extent that the General Corporation Law of Delaware
prohibits the elimination or limitation of liability of directors for breaches
of fiduciary duty, no director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability. No amendment to or repeal of this provision shall apply to or have
any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
EIGHTH. 1. Actions, Suits and Proceedings Other than by or in the Right
------------------------------------------------------------
of the Corporation. The Corporation shall indemnify each person who was or is a
- ------------------
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, 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 Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
---------------
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
-3-
<PAGE>
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. Notwithstanding
anything to the contrary in this Article, except as set forth in Section 7
below, the Corporation shall not indemnify an Indemnitee seeking indemnification
in connection with a proceeding (or part thereof) initiated by the Indemnitee
unless the initiation thereof was approved by the Board of Directors of the
Corporation. Notwithstanding anything to the contrary in this Article, the
Corporation shall not indemnify an Indemnitee to the extent such Indemnitee is
reimbursed from the proceeds of insurance, and in the event the Corporation
makes any indemnification payments to an Indemnitee and such Indemnitee is
subsequently reimbursed from the proceeds of insurance, such Indemnitee shall
promptly refund such indemnification payments to the Corporation to the extent
of such insurance reimbursement.
2. Actions or Suits by or in the Right of the Corporation. The
------------------------------------------------------
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) and, to the extent permitted by law,
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, 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 Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of Delaware shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses (including attorneys' fees)
which the Court of Chancery of Delaware shall deem proper.
3. Indemnification for Expenses of Successful Party. Notwithstanding the
------------------------------------------------
other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an
adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of
guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the
---------------
Indemnitee did not act in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.
-4-
<PAGE>
4. Notification and Defense of Claim. As a condition precedent to his
---------------------------------
right to be indemnified, the Indemnitee must notify the Corporation in writing
as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 4. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the Corporation, except
as otherwise expressly provided by this Article. The Corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the Corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.
5. Advance of Expenses. Subject to the provisions of Section 6 below, in
-------------------
the event that the Corporation does not assume the defense pursuant to Section 4
of this Article of any action, suit, proceeding or investigation of which the
Corporation receives notice under this Article, any expenses (including
attorneys' fees) incurred by an Indemnitee in defending a civil or criminal
action, suit, proceeding or investigation or any appeal therefrom shall be paid
by the Corporation in advance of the final disposition of such matter; provided,
however, that the payment of such expenses incurred by an Indemnitee in advance
of the final disposition of such matter shall be made only upon receipt of an
undertaking by or on behalf of the Indemnitee to repay all amounts so advanced
in the event that it shall ultimately be determined that the Indemnitee is not
entitled to be indemnified by the Corporation as authorized in this Article.
Such undertaking shall be accepted without reference to the financial ability of
the Indemnitee to make such repayment.
6. Procedure for Indemnification. In order to obtain indemnification or
-----------------------------
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines within such 60-day period that the Indemnitee did not
meet the applicable standard of conduct set forth in Section 1 or 2, as the case
may be. Such determination shall be made in each instance by (a) a majority
vote of the directors of the Corporation consisting of persons who are
-5-
<PAGE>
not at that time parties to the action, suit or proceeding in question
("disinterested directors"), whether or not a quorum, (b) a majority vote of a
committee of disinterested directors designated by majority vote of
disinterested directors, whether or not a quorum, (c) a majority vote of a
quorum of the outstanding shares of stock of all classes entitled to vote for
directors, voting as a single class, which quorum shall consist of stockholders
who are not at that time parties to the action, suit or proceeding in question,
(d) independent legal counsel (who may, to the extent permitted by law, be
regular legal counsel to the Corporation), or (e) a court of competent
jurisdiction.
7. Remedies. The right to indemnification or advances as granted by this
--------
Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise required by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expenses under
this Article shall be on the Corporation. Neither the failure of the
Corporation to have made a determination prior to the commencement of such
action that indemnification is proper in the circumstances because the
Indemnitee has met the applicable standard of conduct, nor an actual
determination by the Corporation pursuant to Section 6 that the Indemnitee has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the Indemnitee has not met the applicable standard of
conduct. The Indemnitee's expenses (including attorneys' fees) incurred in
connection with successfully establishing his right to indemnification, in whole
or in part, in any such proceeding shall also be indemnified by the Corporation.
8. Subsequent Amendment. No amendment, termination or repeal of this
--------------------
Article or of the relevant provisions of the General Corporation Law of Delaware
or any other applicable laws shall affect or diminish in any way the rights of
any Indemnitee to indemnification under the provisions hereof with respect to
any action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
9. Other Rights. The indemnification and advancement of expenses
------------
provided by this Article shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in any other capacity while holding office for the
Corporation, and shall continue as to an Indemnitee who has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of the Indemnitee. Nothing contained in this
Article shall be deemed to prohibit, and the Corporation is specifically
authorized to enter into, agreements with officers and directors providing
indemnification rights and procedures different from those set forth in this
Article. In addition, the Corporation may, to the extent authorized from time
to time by its Board of Directors, grant indemnification rights to other
employees or agents of the Corporation or other persons serving the Corporation
and such rights may be equivalent to, or greater or less than, those set forth
in this Article.
10. Partial Indemnification. If an Indemnitee is entitled under any
-----------------------
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including
-6-
<PAGE>
attorneys' fees), judgments, fines or amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with any action, suit,
proceeding or investigation and any appeal therefrom but not, however, for the
total amount thereof, the Corporation shall nevertheless indemnify the
Indemnitee for the portion of such expenses (including attorneys' fees),
judgments, fines or amounts paid in settlement to which the Indemnitee is
entitled.
11. Insurance. The Corporation may purchase and maintain insurance, at
---------
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) against any expense,
liability or loss incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
such person against such expense, liability or loss under the General
Corporation Law of Delaware.
12. Merger or Consolidation. If the Corporation is merged into or
-----------------------
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
13. Savings Clause. If this Article or any portion hereof shall be
--------------
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
14. Definitions. Terms used herein and defined in Section 145(h) and
-----------
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
15. Subsequent Legislation. If the General Corporation Law of Delaware is
----------------------
amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the Corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
NINTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute and this Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
TENTH. This Article is inserted for the management of the business and for
the conduct of the affairs of the Corporation.
1. Number of Directors. The number of directors of the Corporation shall
-------------------
not be less than three. The exact number of directors within the limitations
specified in the preceding sentence shall be fixed from time to time by, or in
the manner provided in, the Corporation's By-Laws.
-7-
<PAGE>
2. Classes of Directors. The Board of Directors shall be and is divided
--------------------
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class I, and if such fraction is two-thirds, one of the extra directors shall be
a member of Class I and one of the extra directors shall be a member of Class
II, unless otherwise provided from time to time by resolution adopted by the
Board of Directors.
3. Election of Directors. Elections of directors need not be by written
---------------------
ballot except as and to the extent provided in the By-Laws of the Corporation.
4. Terms of Office. Each director shall serve for a term ending on the
---------------
date of the third annual meeting following the annual meeting at which such
director was elected; provided, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting in 2000; each initial
director in Class II shall serve for a term ending on the date of the annual
meeting in 2001; and each initial director in Class III shall serve for a term
ending on the date of the annual meeting in 2002; and provided further, that the
term of each director shall be subject to the election and qualification of his
successor and to his earlier death, resignation or removal.
5. Allocation of Directors Among Classes in the Event of Increases or
------------------------------------------------------------------
Decreases in the Number of Directors. In the event of any increase or decrease
- ------------------------------------
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
and (ii) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
6. Quorum; Action at Meeting. A majority of the directors at any time in
-------------------------
office shall constitute a quorum for the transaction of business. In the event
one or more of the directors shall be disqualified to vote at any meeting, then
the required quorum shall be reduced by one for each director so disqualified,
provided that in no case shall less than one-third of the number of directors
fixed pursuant to Section 1 above constitute a quorum. If at any meeting of the
Board of Directors there shall be less than such a quorum, a majority of those
present may adjourn the meeting from time to time. Every act or decision done
or made by a majority of the directors present at a meeting duly held at which a
quorum is present shall be regarded as the act of the Board of Directors unless
a greater number is required by law, by the By-Laws of the Corporation or by
this Certificate of Incorporation.
7. Removal. Directors of the Corporation may be removed only for cause
-------
by the affirmative vote of the holders of at least two-thirds of the shares of
the capital stock of the Corporation issued and outstanding and entitled to
vote.
-8-
<PAGE>
8. Vacancies. Any vacancy in the Board of Directors, however occurring,
---------
including a vacancy resulting from an enlargement of the size of the Board of
Directors, shall be filled only by a vote of a majority of the directors then in
office, although less than a quorum, or by a sole remaining director. A
director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office, and a director chosen to fill a position resulting
from an increase in the number of directors shall hold office until the next
election of the class for which such director shall have been chosen, subject to
the election and qualification of his successor and to his earlier death,
resignation or removal.
9. Stockholder Nominations and Introduction of Business, Etc. Advance
----------------------------------------------------------
notice of stockholder nominations for election of directors and other business
to be brought by stockholders before a meeting of stockholders shall be given in
the manner provided by the By-Laws of the Corporation.
10. Amendments to Article. Notwithstanding any other provisions of law,
---------------------
this Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least sixty-six and two-thirds percent (66
2/3%) of the shares of capital stock of the Corporation issued and outstanding
and entitled to vote shall be required to amend or repeal, or to adopt any
provision inconsistent with, this Article TENTH.
ELEVENTH. Stockholders of the Corporation may not take any action by
written consent in lieu of a meeting. Notwithstanding any other provisions of
law, this Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least sixty-six and two-thirds percent (66
2/3%) of the shares of capital stock of the Corporation issued and outstanding
and entitled to vote shall be required to amend or repeal, or to adopt any
provision inconsistent with, this Article ELEVENTH.
TWELFTH. Special meetings of stockholders may be called at any time by
only the Chairman of the Board of Directors, the President or the Board of
Directors. Business transacted at any special meeting of stockholders shall be
limited to matters relating to the purpose or purposes stated in the notice of
meeting. Notwithstanding any other provision of law, this Certificate of
Incorporation or the By-Laws of the Corporation, and notwithstanding the fact
that a lesser percentage may be specified by law, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the shares of
capital stock of the Corporation issued and outstanding and entitled to vote
shall be required to amend or repeal, or to adopt any provision inconsistent
with, this Article TWELFTH.
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be signed by its President this 27th day of
October, 1999.
SYCAMORE NETWORKS, INC.
/s/ Daniel E. Smith
-------------------
Daniel E. Smith
President
-9-
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
SYCAMORE NETWORKS, INC.
_________________________________________
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
_________________________________________
Sycamore Networks, Inc., a Delaware corporation (hereinafter called
the "Corporation"), does hereby certify as follows:
FIRST: Article 4 of the Corporation's Amended and Restated Certificate
of Incorporation is hereby amended to read in its entirety as set forth below:
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 1,505,000,000 shares,
consisting of (i) 1,500,000,000 shares of Common Stock, $.001 par
value per share ("Common Stock"), and (ii) 5,000,000 shares of
Preferred Stock, $.01 par value per share ("Preferred Stock").
SECOND: The foregoing amendment was duly adopted in accordance with
Section 242 of the General Corporation Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, Sycamore Networks, Inc. has caused this Certificate to
be duly executed in its corporate name this 26th day of January, 2000.
SYCAMORE NETWORKS, INC.
By: /s/ Daniel E. Smith
-----------------------------------
Name: Daniel E. Smith
Title: President and Chief Executive
Officer
2
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED
BY-LAWS
OF
SYCAMORE NETWORKS, INC.
ARTICLE 1 - Stockholders
------------------------
1.1 Place of Meetings. All meetings of stockholders shall be held at
-----------------
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors, the Chairman of the Board or the
President or, if not so designated, at the registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election
--------------
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Board of
Directors, the Chairman of the Board or the President (which date shall not be a
legal holiday in the place where the meeting is to be held) at the time and
place to be fixed by the Board of Directors, the Chairman of the Board or the
President and stated in the notice of the meeting. If no annual meeting is held
in accordance with the foregoing provisions, the Board of Directors shall cause
the meeting to be held as soon thereafter as convenient. If no annual meeting
is held in accordance with the foregoing provisions, a special meeting may be
held in lieu of the annual meeting, and any action taken at that special meeting
shall have the same effect as if it had been taken at the annual meeting, and in
such case all references in these By-Laws to the annual meeting of the
stockholders shall be deemed to refer to such special meeting.
1.3 Special Meetings. Special meetings of stockholders may be called at
----------------
any time only by the Chairman of the Board of Directors, the President or the
Board of Directors. Business transacted at any special meeting of stockholders
shall be limited to matters relating to the purpose or purposes stated in the
notice of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
------------------
notice of each meeting of stockholders, whether annual or special, shall be
given not less than ten nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at the stockholder's address as it
appears on the records of the corporation.
<PAGE>
1.5 Voting List. The officer who has charge of the stock ledger of the
-----------
corporation shall prepare, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, at a place within the city where the meeting is
to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time of the meeting, and may be inspected by any
stockholder who is present.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
------
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any
------------
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
------------------
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
by law, the Certificate of Incorporation or these By-Laws. Each stockholder of
record entitled to vote at a meeting of stockholders, or to express consent or
dissent to corporate action in writing without a meeting, may vote or express
such consent or dissent in person or may authorize another person or persons to
vote or act for him by proxy executed in writing (or in such other manner
permitted by the General Corporation Law of the State of Delaware) by the
stockholder or his authorized agent and delivered or transmitted to the
Secretary of the corporation. No such proxy shall be voted or acted upon after
three years from the date of its execution, unless the proxy expressly provides
for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, the
-----------------
holders of a majority of the stock present or represented and voting on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of a majority of the
stock of that class present or represented and voting on a matter) shall decide
any matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express provision of law, the Certificate of
Incorporation or these By-Laws. Any
2
<PAGE>
election by stockholders shall be determined by a plurality of the votes cast by
the stockholders entitled to vote at the election.
1.10 Nomination of Directors. Only persons who are nominated in
-----------------------
accordance with the following procedures shall be eligible for election as
directors. Nomination for election to the Board of Directors of the corporation
at a meeting of stockholders may be made by the Board of Directors or by any
stockholder of the corporation entitled to vote for the election of directors at
such meeting who complies with the notice procedures set forth in this Section
1.10. Such nominations, other than those made by or on behalf of the Board of
Directors, shall be made by timely notice in writing to the Secretary of the
corporation. To be timely, a stockholder's notice must be delivered to, or
mailed and received by, the Secretary at the principal executive offices of the
corporation not less than 70 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that (i)
in the event that the date of the annual meeting is advanced by more than 20
days, or delayed by more than 70 days, from such anniversary date, notice by the
stockholder to be timely must be so delivered or received not earlier than the
ninetieth day prior to such annual meeting and not later than the close of
business on the later of the seventieth day prior to such annual meeting or the
tenth day following the day on which notice of the date of such annual meeting
was mailed or public disclosure of the date of such annual meeting was made,
whichever first occurs, and (ii) with respect to the annual meeting of
stockholders of the corporation to be held in the year 2000, to be timely, a
stockholder's notice must be so received not earlier than the ninetieth day
prior to such annual meeting and not later than the close of business on the
later of (A) the sixtieth day prior to such annual meeting and (B) the tenth day
following the day on which notice of the date of such annual meeting was mailed
or public disclosure of the date of such annual meeting was made, whichever
first occurs. A stockholder's notice to the Secretary shall set forth (a) as to
each proposed nominee (i) the name, age, business address and, if known,
residence address of each such nominee, (ii) the principal occupation or
employment of each such nominee, (iii) the number of shares of stock of the
corporation which are beneficially owned by each such nominee, and (iv) any
other information concerning the nominee that must be disclosed as to nominees
in proxy solicitations pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including such person's written consent to be named as
a nominee and to serve as a director if elected); and (b) as to the stockholder
giving the notice (i) the name and address, as they appear on the corporation's
books, of such stockholder and (ii) the class and number of shares of the
corporation which are beneficially owned by such stockholder. In addition, to
be effective, the stockholder's notice must be accompanied by the written
consent of the proposed nominee to serve as a director if elected. The
corporation may require any proposed nominee to furnish such other information
as may reasonably be required by the corporation to determine the eligibility of
such proposed nominee to serve as a director of the corporation.
The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
3
<PAGE>
1.11 Notice of Business at Annual Meetings. At an annual meeting of the
-------------------------------------
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) otherwise
brought before the meeting by or at the direction of the Board of Directors, or
(c) otherwise properly brought before an annual meeting by a stockholder. For
business to be properly brought before an annual meeting by a stockholder, if
such business relates to the election of directors of the corporation, the
procedures in Section 1.10 must be complied with. If such business relates to
any other matter, the stockholder must have given timely notice thereof in
writing to the Secretary. To be timely, a stockholder's notice must be
delivered to, or mailed and received by, the Secretary at the principal
executive offices of the corporation not less than 70 days nor more than 90 days
prior to the first anniversary of the preceding year's annual meeting; provided,
however, that (i) in the event that the date of the annual meeting is advanced
by more than 20 days, or delayed by more than 70 days, from such anniversary
date, notice by the stockholder to be timely must be so delivered or received
not earlier than the ninetieth day prior to such annual meeting and not later
than the close of business on the later of the seventieth day prior to such
annual meeting or the tenth day following the day on which notice of the date of
such annual meeting was mailed or public disclosure of the date of such annual
meeting was made, whichever first occurs, and (ii) with respect to the annual
meeting of stockholders of the corporation to be held in the year 2000, to be
timely, a stockholder's notice must be so received not earlier than the
ninetieth day prior to such annual meeting and not later than the close of
business on the later of (A) the sixtieth day prior to such annual meeting and
(B) the tenth day following the day on which notice of the date of such annual
meeting was mailed or public disclosure of the date of such annual meeting was
made, whichever first occurs. A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting (a) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (b) the name and address, as they appear on the corporation's books, of
the stockholder proposing such business, (c) the class and number of shares of
the corporation which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business. Notwithstanding anything
in these By-Laws to the contrary, no business shall be conducted at any annual
meeting except in accordance with the procedures set forth in this Section 1.11
and except that any stockholder proposal which complies with Rule 14a-8 of the
proxy rules (or any successor provision) promulgated under the Securities
Exchange Act of 1934, as amended, and is to be included in the corporation's
proxy statement for an annual meeting of stockholders shall be deemed to comply
with the requirements of this Section 1.11.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 1.11, and if he should so
determine, the chairman shall so declare to the meeting that any such business
not properly brought before the meeting shall not be transacted.
4
<PAGE>
1.12 Action without Meeting. Unless otherwise provided in the
----------------------
Certificate of Incorporation, any action required or permitted to be taken by
stockholders for or in connection with any corporate action may be taken without
a meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted and shall be delivered to the
corporation by delivery to its registered office in Delaware by hand or
certified or registered mail, return receipt requested, to its principal place
of business or to an officer or agent of the corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Each such
written consent shall bear the date of signature of each stockholder who signs
the consent. No written consent shall be effective to take the corporate action
referred to therein unless written consents signed by a number of stockholders
sufficient to take such action are delivered to the corporation in the manner
specified in this paragraph within sixty days of the earliest dated consent so
delivered.
If action is taken by consent of stockholders and in accordance with the
foregoing, there shall be filed with the records of the meetings of stockholders
the writing or writings comprising such consent.
If action is taken by less than unanimous consent of stockholders, prompt
notice of the taking of such action without a meeting shall be given to those
who have not consented in writing and a certificate signed and attested to by
the Secretary of the corporation that such notice was given shall be filed with
the records of the meetings of stockholders.
In the event that the action which is consented to is such as would have
required the filing of a certificate under any provision of the General
Corporation Law of the State of Delaware, if such action had been voted upon by
the stockholders at a meeting thereof, the certificate filed under such
provision shall state, in lieu of any statement required by such provision
concerning a vote of stockholders, that written consent has been given under
Section 228 of said General Corporation Law and that written notice has been
given as provided in such Section 228.
Notwithstanding the foregoing, if at any time the corporation shall have a
class of stock registered pursuant to the provisions of the Securities Exchange
Act of 1934, as amended, for so long as such class is registered, any action by
the stockholders of such class must be taken at an annual or special meeting of
stockholders and may not be taken by written consent.
1.13 Organization. The Chairman of the Board, or in his absence the Vice
------------
Chairman of the Board designated by the Chairman of the Board, or the President,
in the order named, shall call meetings of the stockholders to order, and shall
act as chairman of such meeting; provided, however, that the Board of Directors
may appoint any stockholder to act as chairman of any meeting in the absence of
the Chairman of the Board. The Secretary of the corporation shall act as
secretary at all meetings of the stockholders; but in the absence of the
Secretary at any meeting
5
<PAGE>
of the stockholders, the presiding officer may appoint any person to act as
secretary of the meeting.
ARTICLE 2 - Directors
---------------------
2.1 General Powers. The business and affairs of the corporation shall be
--------------
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
2.2 Number; Election and Qualification. The number of directors which
----------------------------------
shall constitute the whole Board of Directors shall be determined by resolution
of the Board of Directors, but in no event shall be less than three. The number
of directors may be decreased at any time and from time to time by a majority of
the directors then in office, but only to eliminate vacancies existing by reason
of the death, resignation, removal or expiration of the term of one or more
directors. The directors shall be elected at the annual meeting of stockholders
by such stockholders as have the right to vote on such election. Directors need
not be stockholders of the corporation.
2.3 Classes of Directors. The Board of Directors shall be and is
--------------------
divided into three classes: Class I, Class II and Class III. No one class
shall have more than one director more than any other class. If a fraction is
contained in the quotient arrived at by dividing the designated number of
directors by three, then, if such fraction is one-third, the extra director
shall be a member of Class I, and if such fraction is two-thirds, one of the
extra directors shall be a member of Class I and one of the extra directors
shall be a member of Class II, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
2.4 Terms of Office. Each director shall serve for a term ending on the
---------------
date of the third annual meeting following the annual meeting at which such
director was elected; provided, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting of stockholders in
2000; each initial director in Class II shall serve for a term ending on the
date of the annual meeting of stockholders in 2001; and each initial director in
Class III shall serve for a term ending on the date of the annual meeting of
stockholders in 2002; and provided further, that the term of each director shall
be subject to the election and qualification of his successor and to his earlier
death, resignation or removal.
2.5 Allocation of Directors Among Classes in the Event of Increases or
------------------------------------------------------------------
Decreases in the Number of Directors. In the event of any increase or
- ------------------------------------
decrease in the authorized number of directors, (i) each director then serving
as such shall nevertheless continue as a director of the class of which he or
she is a member and (ii) the newly created or eliminated directorships
6
<PAGE>
resulting from such increase or decrease shall be apportioned by the Board of
Directors among the three classes of directors so as to ensure that no one class
has more than one director more than any other class. To the extent possible,
consistent with the foregoing rule, any newly created directorships shall be
added to those classes whose terms of office are to expire at the latest dates
following such allocation, and any newly eliminated directorships shall be
subtracted from those classes whose terms of offices are to expire at the
earliest dates following such allocation, unless otherwise provided from time to
time by resolution adopted by the Board of Directors.
2.6 Vacancies. Any vacancy in the Board of Directors, however occurring,
---------
including a vacancy resulting from an enlargement of the size of the Board,
shall be filled only by vote of a majority of the directors then in office,
although less than a quorum, or by a sole remaining director. A director elected
to fill a vacancy shall be elected for the unexpired term of his predecessor in
office, and a director chosen to fill a position resulting from an increase in
the number of directors shall hold office until the next election of the class
for which such director shall have been chosen, subject to the election and
qualification of his successor and to his earlier death, resignation or removal.
2.7 Resignation. Any director may resign by delivering his written
-----------
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.8 Regular Meetings. Regular meetings of the Board of Directors may be
----------------
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.9 Special Meetings. Special meetings of the Board of Directors may be
----------------
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
2.10 Notice of Special Meetings. Notice of any special meeting of
--------------------------
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 24 hours in advance of the meeting, (ii) by sending a telegram, telecopy,
telex or electronic mail message, or delivering written notice by hand, to his
last known business or home address at least 24 hours in advance of the meeting,
or (iii) by mailing written notice to his last known business or home address at
least 72 hours in advance of the meeting. A notice or waiver of notice of a
meeting of the Board of Directors need not specify the purposes of the meeting.
7
<PAGE>
2.11 Meetings by Telephone Conference Calls. Directors or any members
--------------------------------------
of any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.12 Quorum. A majority of the total number of the whole Board of
------
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
2.13 Action at Meeting. At any meeting of the Board of Directors at which
-----------------
a quorum is present, the vote of a majority of those present shall be sufficient
to take any action, unless a different vote is specified by law, the Certificate
of Incorporation or these By-Laws.
2.14 Action by Consent. Any action required or permitted to be taken at
-----------------
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
2.15 Removal. Directors of the corporation may be removed only for cause
-------
by the affirmative vote of the holders of at least two-thirds of the shares of
the capital stock of the corporation issued and outstanding and entitled to
vote.
2.16 Committees. The Board of Directors may designate one or more
----------
committees, each committee to consist of one or more of the directors of the
corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the corporation
and may authorize the seal of the corporation to be affixed to all papers which
may require it. Each such committee shall keep minutes and make such reports as
the Board of Directors may from time to time request. Except as the Board of
Directors may otherwise determine, any committee may make rules for the conduct
of its business, but unless otherwise provided by the directors or in such
rules, its
8
<PAGE>
business shall be conducted as nearly as possible in the same manner as is
provided in these By-laws for the Board of Directors.
2.17 Compensation of Directors. Directors may be paid such compensation
-------------------------
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment
shall preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE 3 - Officers
--------------------
3.1 Enumeration. The officers of the corporation shall consist of a
-----------
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be elected
--------
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
-------------
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
------
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
-----------------------
or her written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any officer may be removed at any time, with or without cause, by vote of a
majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer who
resigns or is removed shall have any right to any compensation as an officer for
any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
9
<PAGE>
3.6 Vacancies. The Board of Directors may fill any vacancy occurring in
---------
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 Chairman of the Board and Vice Chairman of the Board. The Board of
----------------------------------------------------
Directors may appoint a Chairman of the Board. If the Board of Directors
appoints a Chairman of the Board, he shall perform such duties and possess such
powers as are assigned to him by the Board of Directors. Unless otherwise
provided by the Board of Directors, he shall preside at all meetings of the
stockholders and at all meetings of the Board of Directors. If the Board of
Directors appoints a Vice Chairman of the Board, he shall, in the absence or
disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board and shall perform such other duties and
possess such other powers as may from time to time be vested in him by the Board
of Directors.
3.8 President. The President shall, subject to the direction of the
---------
Board of Directors, have general charge and supervision of the business of the
corporation. Unless the Board of Directors has designated the Chairman of the
Board or another officer as Chief Executive Officer, the President shall be the
Chief Executive Officer of the corporation. The President shall perform such
other duties and shall have such other powers as the Board of Directors may from
time to time prescribe.
3.9 Vice Presidents. Any Vice President shall perform such duties and
---------------
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform
-----------------------------------
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of the
secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors, to
attend all meetings of stockholders and the Board of Directors and keep a record
of the proceedings, to maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
10
<PAGE>
Any Assistant Secretary shall perform such duties and possess such powers
as the Board of Directors, the President or the Secretary may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Secretary, the Assistant Secretary (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting
of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform
----------------------------------
such duties and shall have such powers as may from time to time be assigned to
him or her by the Board of Directors or the President. In addition, the
Treasurer shall perform such duties and have such powers as are incident to the
office of treasurer, including without limitation the duty and power to keep and
be responsible for all funds and securities of the corporation, to deposit funds
of the corporation in depositories selected in accordance with these By-Laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such powers
as the Board of Directors, the President or the Treasurer may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Treasurer, the Assistant Treasurer (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 Salaries. Officers of the corporation shall be entitled to such
--------
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 4 - Capital Stock
-------------------------
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
-----------------
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the corporation
---------------------
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him or her in the corporation. Each such
11
<PAGE>
certificate shall be signed by, or in the name of the corporation by, the
Chairman or Vice Chairman, if any, of the Board of Directors, or the President
or a Vice President, and the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the corporation. Any or all of the
signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any restriction
on transfer pursuant to the Certificate of Incorporation, the By-Laws,
applicable securities laws or any agreement among any number of stockholders or
among such holders and the corporation shall have conspicuously noted on the
face or back of the certificate either the full text of the restriction or a
statement of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and regulations
---------
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-Laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the corporation in
accordance with the requirements of these By-Laws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a
--------------------------------------
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as a
-----------
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders, or entitled to receive payment of any
dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than ten days
before the date of such meeting, nor more than 60 days prior to any other action
to which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders for any other
12
<PAGE>
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 5 - General Provisions
------------------------------
5.1 Fiscal Year. Except as from time to time otherwise designated by
-----------
the Board of Directors, the fiscal year of the corporation shall begin on the
first day of January in each year and end on the last day of December in each
year.
5.2 Corporate Seal. The corporate seal shall be in such form as shall
--------------
be approved by the Board of Directors.
5.3 Waiver of Notice. Whenever any notice whatsoever is required to be
----------------
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
5.4 Voting of Securities. Except as the directors may otherwise
--------------------
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
5.5 Evidence of Authority. A certificate by the Secretary, or an
---------------------
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
5.6 Certificate of Incorporation. All references in these By-Laws to the
----------------------------
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
5.7 Transactions with Interested Parties. No contract or transaction
------------------------------------
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely
13
<PAGE>
for this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum;
(2) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified, by the Board of Directors,
a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
5.8 Severability. Any determination that any provision of these By-Laws
------------
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
5.9 Pronouns. All pronouns used in these By-Laws shall be deemed to
--------
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
ARTICLE 6 - Amendments
----------------------
6.1 By the Board of Directors. These By-Laws may be altered, amended or
-------------------------
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
6.2 By the Stockholders. Except as otherwise provided in Section 6.3,
-------------------
these By-Laws may be altered, amended or repealed or new by-laws may be adopted
by the affirmative vote of the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
any regular or special meeting of stockholders, provided notice
14
<PAGE>
of such alteration, amendment, repeal or adoption of new by-laws shall have been
stated in the notice of such regular or special meeting.
6.3 Certain Provisions. Notwithstanding any other provision of law, the
------------------
Certificate of Incorporation or these By-Laws, and notwithstanding the fact that
a lesser percentage may be specified by law, the affirmative vote of the holders
of at least sixty-six and two-thirds percent (66 2/3%) of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote
shall be required to amend or repeal, or to adopt any provision inconsistent
with Section 1.3, Section 1.10, Section 1.11, Section 1.12, Section 1.13,
Article 2 or Article 6 of these By-Laws.
15
<PAGE>
EXHIBIT 4.4
AMENDMENT NO. 2
TO
SECOND AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
-------------------------
This Amendment dated as of August 5, 1999 is entered into by and among
Sycamore Networks, Inc., a Delaware corporation (the "Company"), and the persons
and entities listed on Schedule I hereto.
WHEREAS, the Company has entered into a Second Amended and Restated
Investor Rights Agreement dated as of February 26, 1999 and amended on July 23,
1999 (the "Agreement");
WHEREAS, the Company and the requisite parties necessary to effect an
amendment to the Agreement pursuant to Section 7(b) thereof desire that the
Agreement be amended in the manner set forth below; and
WHEREAS, the parties hereto desire to amend the Agreement pursuant to
this Amendment No. 2.
NOW THEREFORE, in consideration of the mutual covenants contained
herein and for other valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1. Section 2 of Article V of the Agreement is hereby amended to add
the word "parents" as persons to whom a Founder (as such term is defined in the
Agreement) may transfer shares of the capital stock of the Company.
2. The Agreement, as supplemented and modified by this Amendment,
together with the other writings referred to in the Agreement or delivered
pursuant thereto which form a part thereof, contain the entire agreement among
the parties with respect to the subject matter thereof and amend, restate and
supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
3. Upon the effectiveness of this Amendment, on and after the date
hereof, each reference in the Agreement to "this Agreement," "hereunder,"
"hereof," "herein" or words of like import, and each reference in the other
documents entered into in connection with the Agreement, shall mean and be a
reference to the Agreement, as amended hereby. Except as specifically amended
above, the Agreement shall remain in full force and effect and is hereby
ratified and confirmed.
<PAGE>
4. This Amendment shall be governed by the laws of the State of
Delaware, notwithstanding the conflict-of-law doctrines of Delaware or any other
jurisdiction to the contrary.
5. This Amendment may be executed in any number of counterparts, and
each such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
6. This Amendment shall be binding on all parties to the Agreement as
and when executed by the Company, Founding Stockholders holding at least a
majority by voting power of the shares of capital stock held by the Founding
Stockholders and Investors holding at least a majority of the shares of Common
Stock issued or issuable upon conversion of the shares of the Series A Preferred
Stock and/or the Series B Preferred Stock and/or the Series C Preferred Stock
and/or the Series D Preferred Stock.
[Remainder of this Page Intentionally Left Blank]
2
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Amendment on
the date first above written.
COMPANY:
SYCAMORE NETWORKS, INC.
By: /s/ Daniel Smith
---------------------
Daniel Smith
President
Matrix Partners V, L.P.
Bay Colony Corporate Center
1000 Winter Street, Suite 4500
Waltham, Massachusetts 02154
By: Matrix V Management Co., L.C.C.,
its General Partner
By: /s/ Paul J. Ferri
---------------------
Matrix V Entrepreneurs Fund, L.P.
Bay Colony Corporate Center
1000 Winter Street, Suite 4500
Waltham, Massachusetts 02154
By: Matrix V Management Co., L.C.C.,
its General Partner
By /s/ Paul J. Ferri
----------------------
/s/ Gururaj Deshpande
------------------------
Gururaj Deshpande
/s/ Daniel Smith
------------------------
Daniel Smith
3
<PAGE>
FOUNDING STOCKHOLDERS:
/s/ Gururaj Deshpande
------------------------
Gururaj Deshpande
Address: 9 Sparta Way
Andover, MA 01810
/s/ Richard Barry
------------------------
Richard Barry
Address: 1284 Beacon Street, #815
Brookline, MA 02138
4
<PAGE>
Schedule 1
----------
Investors
---------
Matrix Partners V, L.P.
Matrix V Entrepreneurs Fund, L.P.
Gururaj Deshpande
Daniel Smith
Richard Barry
<PAGE>
EXHIBIT 4.5
AMENDMENT NO. 3
TO
SECOND AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
-------------------------
This Amendment dated as of September 20, 1999 is entered into by and among
Sycamore Networks, Inc., a Delaware corporation (the "Company"), and the persons
and entities listed on Schedule I hereto.
WHEREAS, the Company has entered into a Second Amended and Restated
Investor Rights Agreement dated as of February 26, 1999 and amended on July 23,
1999 and August 5, 1999 (the "Agreement");
WHEREAS, the Company and the requisite parties necessary to effect an
amendment to the Agreement pursuant to Section 7(b) thereof desire that the
Agreement be amended in the manner set forth below; and
WHEREAS, the parties hereto desire to amend the Agreement pursuant to this
Amendment No. 3.
NOW THEREFORE, in consideration of the mutual covenants contained herein
and for other valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. The last sentence of Section 2 of Article V of the Agreement is hereby
deleted in its entirety and replaced with the following:
"Notwithstanding the foregoing, any party hereto may transfer (i) any or
all of his Shares to any Family Member (as defined below), (ii) any and all
of his Shares under his will, (iii) any and all of his Shares to a limited
partnership, limited liability company, trust or other similar entity
established for the benefit of any Family Member or (iv) up to 10,000 (ten
thousand)Shares individually or to any third party as a gift. "Family
Member" shall mean any child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-
law, including adoptive relationships."
2. The Agreement, as supplemented and modified by this Amendment,
together with the other writings referred to in the Agreement or delivered
pursuant thereto which form a part thereof, contain the entire agreement among
the parties with respect to the subject matter thereof and amend, restate and
supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
3. Upon the effectiveness of this Amendment, on and after the date
hereof, each reference in the Agreement to "this Agreement," "hereunder,"
"hereof," "herein" or words of like import, and each reference in the other
documents entered into in connection with the
<PAGE>
Agreement, shall mean and be a reference to the Agreement, as amended hereby.
Except as specifically amended above, the Agreement shall remain in full force
and effect and is hereby ratified and confirmed.
4. This Amendment shall be governed by the laws of the State of Delaware,
notwithstanding the conflict-of-law doctrines of Delaware or any other
jurisdiction to the contrary.
5. This Amendment may be executed in any number of counterparts, and each
such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
6. This Amendment shall be binding on all parties to the Agreement as and
when executed by the Company, Founding Stockholders holding at least a majority
by voting power of the shares of capital stock held by the Founding Stockholders
and Investors holding at least a majority of the shares of Common Stock issued
or issuable upon conversion of the shares of the Series A Preferred Stock and/or
the Series B Preferred Stock and/or the Series C Preferred Stock and/or the
Series D Preferred Stock.
[Remainder of this Page Intentionally Left Blank]
2
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Amendment on the
date first above written.
COMPANY:
SYCAMORE NETWORKS, INC.
By: /s/ Daniel Smith
---------------------
Daniel Smith
President
Matrix Partners V, L.P.
Bay Colony Corporate Center
1000 Winter Street, Suite 4500
Waltham, Massachusetts 02154
By: Matrix V Management Co., L.C.C.,
its General Partner
By: /s/ Paul J. Ferri
---------------------
Matrix V Entrepreneurs Fund, L.P.
Bay Colony Corporate Center
1000 Winter Street, Suite 4500
Waltham, Massachusetts 02154
By: Matrix V Management Co., L.C.C.,
its General Partner
By: /s/ Paul J. Ferri
---------------------
/s/ Gururaj Deshpande
-------------------------
Gururaj Deshpande
/s/ Daniel Smith
-------------------------
Daniel Smith
3
<PAGE>
FOUNDERS:
/s/ Gururaj Deshpande
---------------------
Gururaj Deshpande
Address: 9 Sparta Way
Andover, MA 01810
/s/ Richard Barry
-----------------
Richard Barry
Address: 1284 Beacon Street, # 815
Brookline, MA 02138
4
<PAGE>
Schedule 1
----------
Investors
---------
Matrix Partners V, L.P.
Matrix V Entrepreneurs Fund, L.P.
Gururaj Deshpande
Daniel Smith
<PAGE>
EXHIBIT 4.6
AMENDMENT NO. 4 TO SECOND
AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
This Agreement, dated as of February 11, 2000, is entered into by and
among Sycamore Networks, Inc., a Delaware corporation ( the "Company"), the
Investors (as defined below) and the Founders (as defined below).
WHEREAS, the Company has entered into a Second Amended and Restated
Investor Rights Agreement (the "Agreement") dated as of February 26, 1999, with
the persons and entities listed on Schedule I thereto under the heading
"Investors" (individually, an "Investor" and collectively, the "Investors") and
the persons listed on Schedule II thereto under the heading "Founders"
(individually, a "Founder" and collectively, the "Founders"), which Agreement
was amended by Amendment No. 1 thereto dated as of July 23, 1999 by and among
the Company, Siemens Information and Communication Networks, Inc., a Delaware
corporation, the Investors and the Founders, and further amended by Amendment
No. 2 thereto and Amendment No. 3 thereto dated as of August 5, 1999, and
September 20, 1999, respectively, by and among the Company, the Investors and
the Founders (the Agreement, as so amended being referred to herein as the
"Second Restated Agreement"); and
WHEREAS, the Second Restated Agreement provides, among other things,
that it may be amended at any time by a written instrument signed by the Company
and Investors holding at least a majority of the shares of the common stock
$.001 par value, of the Company issued or issuable upon conversion of the Shares
(as defined in the Second Restated Agreement); and
WHEREAS, the Investors parties hereto hold shares of Common Stock
representing at least a majority of the shares of Common Stock issued upon
conversion of the Shares; and
WHEREAS, the parties hereto wish to amend the Second Restated
Agreement as set forth herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
<PAGE>
1. Paragraph (a) of Section 2 of Article III of the Second Restated
Agreement shall be deleted in its entirety and the following substituted in its
place:
a. Whenever the Company proposes to file a
Registration Statement at any time and from time to
time, it will, prior to such filing, give written
notice to all Stockholders of its intention to do so
and, upon the written request of a Stockholder or
Stockholders, given within 10 business days after the
Company provides such notice (which request shall state
the intended method of disposition of such Registrable
Shares), the Company shall use its reasonable best
efforts to cause all Registrable Shares which the
Company has been requested by such Stockholder or
Stockholders to register, to be registered under the
Securities Act to the extent necessary to permit their
sale or other disposition in accordance with the
intended methods of distribution specified in the
request of such Stockholder or Stockholders; provided,
--------
however, that the provisions of this Section 2 shall
-------
not apply to any Registration Statement filed by the
Company prior to January 1, 2001; provided, further,
-------- -------
however, that the Company shall have the right to
-------
postpone or withdraw any registration effected pursuant
to this Section 2 without obligation to any
Stockholder.
2. The Second Restated Agreement, as supplemented and modified by this
Amendment together with the other writings referred to in the Second Restated
Agreement or delivered pursuant thereto which form a part thereof, contains the
entire agreement among the parties with respect to the subject matter thereof
and amends, restates and supersedes all prior and contemporaneous arrangements
or understandings with respect thereto.
3. Upon the effectiveness of this Agreement, on and after the date
hereof, each reference in the Second Restated Agreement to "this Agreement,"
"hereunder," "hereof," "herein" or words of like import, and each reference in
the other documents entered into in connection with the Second Restated
Agreement, shall mean and be a reference to the Second Restated Agreement, as
amended hereby. Except as specifically amended above, the Second Restated
Agreement shall remain in full force and effect and is hereby ratified and
confirmed.
2
<PAGE>
4. This Amendment shall be governed by the laws of the State of Delaware,
notwithstanding the conflict-of-law doctrines of Delaware or any other
jurisdiction to the contrary.
5. This Amendment may be executed in any number of counterparts, and each
such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
6. This Amendment shall be binding on all parties to the Second Restated
Agreement as and when executed by the Company and Investors holding at least a
majority of the shares of Common Stock issued upon conversion of the Shares.
IN WITNESS WHEREOF the parties hereto have executed this Amendment on the
date first above written.
COMPANY:
SYCAMORE NETWORKS, INC.
By: /s/ Daniel Smith
-----------------------------------
Daniel Smith
President
INVESTORS
SIEMENS INFORMATION AND
COMMUNICATION NETWORKS, INC.
By:___________________________________
Address: 900 Broken Sound Parkway
Boca Raton, FL 33487
For Notices: P.O. Box 58075
Santa Clara, CA 95052-8075
Attn: Bjoern Christensen
Fax: (408) 492-4821
3
<PAGE>
With Copies to: Siemens Corporation
1301 Avenue of Americas
New York, NY 10019
Attn: General Counsel
Fax: (212) 258-4490
MATRIX PARTNERS V, L.P.
Bay Colony Corporate Center
1000 Winter Street, Suite 4500
Waltham, MA 02154
By: Matrix V Management Co., L.L.C.,
its General Partner
By: /s/ Timothy Barrows
------------------------------------------
MATRIX V ENTREPRENEURS FUND, L.P.
Bay Colony Corporate Center
1000 Winter Street, Suite 4500
Waltham, MA 02154
By: Matrix V Management Co., L.L.C.,
its General Partner
By: /s/ Timothy Barrows
------------------------------------------
NORTH BRIDGE VENTURE PARTNERS II, L.P.
404 Wyman Street, Suite 365
Waltham, MA 02154
By: North Bridge Ventures Partners II, L.P.
its General Partner
By:_________________________________________
4
<PAGE>
INTEGRAL CAPITAL PARTNERS IV, L.P.
2750 Sand Hill Road
Menlo Park, CA 94025-7020
By: Integral Capital Management IV, LLC
its General Partner
By:__________________________________________
Pamela K. Hagenah
a Manager
INTEGRAL CAPITAL PARTNERS IV
MS SIDE FUND, L.P.
2750 Sand Hill Road
Menlo Park, CA 94025-7020
By: ICP MS Management, LLC
its General Partner
By:__________________________________________
Pamela K. Hagenah
a Manager
PEQUOT PRIVATE EQUITY FUND, L.P.
500 Nyala Farm Road
Westport, CT 06880
By:_________________________________________
PEQUOT OFFSHORE PRIVATE
EQUITY FUND, INC.
500 Nyala Farm Road
Westport, CT 06880
By:_________________________________________
PEQUOT VENTURE PARTNERS, L.P.
500 Nyala Farm Road
Westport, CT 06880
By:_________________________________________
5
<PAGE>
SPINNAKER FOUNDERS FUND, L.P.
1875 South Grant Street
San Mateo, CA 94402
By: Bowman Capital Management, L.L.C.
its General Partner
By:_________________________________________
William J. Haggerty, Managing
Director of Operations of Bowman
Capital Management, L.L.C.
SPINNAKER OFFSHORE
FOUNDERS FUND, CAYMAN LIMITED
1875 South Grant Street
San Mateo, CA 94402
By: Bowman Capital Management, L.L.C.,
its Investment Adviser and Attorney-in-Fact
By:_________________________________________
William J. Haggerty, Managing
Director of Operations of Bowman
Capital Management, L.L.C.
SPINNAKER CLIPPER FUND, L.P.
1875 South Grant Street
San Mateo, CA 94402
By: Bowman Capital Management, L.L.C.,
its General Partner
By:_______________________________________
William J. Haggerty, Managing
Director of Operations of Bowman
Capital Management, L.L.C.
6
<PAGE>
ATGF II, a Panamanian corporation
SUCRE Building Calle 48 Este
Bella Vista, P.O. Box 5168
Panama S, Panama
By:_________________________________________
Director
The Ralph H. Cechettini 1995 Trust
By:_________________________________________
____________________________________________
James Stableford
____________________________________________
Anthony Ciulla
____________________________________________
William Slattery
____________________________________________
Marc Weiss
____________________________________________
Chikong Shue
____________________________________________
Siu Wing Li
7
<PAGE>
____________________________________________
Michael Viren
____________________________________________
Steven Finn
____________________________________________
Eric MacDonald
____________________________________________
John Dowling
____________________________________________
Leaf Uptegrove
____________________________________________
Scott Baker
____________________________________________
Jeanette Slaff
8
<PAGE>
/s/ Gururaj Deshpande
--------------------------------------------
Gururaj Deshpande
/s/ Daniel Smith
--------------------------------------------
Daniel Smith
FOUNDERS:
/s/ Gururaj Deshpande
--------------------------------------------
Gururaj Deshpande
Address: 9 Sparta Way
Andover, MA 01810
____________________________________________
Richard Barry
Address: 1284 Beacon Street, #815
Brookline, MA 02138
9
<PAGE>
Schedule I
----------
Investors
---------
Matrix Partners V, L.P.
Matrix V Entrepreneurs Fund, L.P.
North Bridge Venture Partners II, L.P.
Integral Capital Partners IV, L.P.
Integral Capital Partners IV MS Side Fund, L.P.
Pequot Private Equity Fund, L.P.
Pequot Venture Partners, L.P.
Pequot Offshore Private Equity Fund, Inc.
ATGF II, a Panamanian corporation
The Ralph H. Cechettini 1995 Trust
James Stableford
Anthony Ciulla
William Slattery
Marc Weiss
Spinnaker Founders Fund, L.P.
Spinnaker Offshore Founders Fund, Cayman Limited
Spinnaker Clipper Fund, L.P.
Gururaj Deshpande
Daniel Smith
Chikong Shue
Siu Wing Li
Michael Viren
Steven Finn
Eric MacDonald
John Dowling
Leaf Uptegrove
Scott Baker
Jeannette Slaff
Siemens Information and Communication Networks, Inc.
<PAGE>
EXHIBIT 10.5
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS (*) DENOTE SUCH OMISSIONS.
Sycamore Networks, Inc.
MANUFACTURING SERVICES AGREEMENT
--------------------------------
1.0 GENERAL SCOPE
- ------------------
This Manufacturing Services Agreement is entered into by and between Sycamore
Networks Inc. (Sycamore), 10 Elizabeth Drive, Chelmsford, Massachusetts 01824
and Celestica Corporation (Celestica), 100 Domain Drive, Exeter, New Hampshire,
03833, USA.
WITNESSETH:
WHEREAS, Sycamore desires to enter into a business relationship involving the
regular performance of two general classes of Manufacturing Services referred to
as "Non recurring" and "Recurring" services.
Non-Recurring Manufacturing Services: generally associated with the initial
-------------------------------------
introduction of new products including but not limited to:development and
design of production tooling, test fixtures and test software for Printed
Wiring Assemblies (PWAs), and product changes and rework of PWA's based on
Sycamore "Engineering Change Orders" (ECOs).
Recurring Manufacturing Services: includes volume production of products
---------------------------------
for Sycamore including but not limited to: Recurring Material Procurement,
assembly of PWAs, test and direct order fulfillment to defined Sycamore
customers.
Recurring Material Procurement: The activities involved to purchase material
------------------------------
for Recurring Manufacturing Services.
Affiliates: "Affiliate" means, with respect to a party hereto, a corporation
-----------
that directly or indirectly controls, is controlled by or is under common
control with that party.
Days: in the context of this Agreement, DAY(S) refers to calendar days.
-----
Months: in the context of this Agreement, MONTH(S) refers to calendar
-------
months.
Delivery Date: as defined on Sycamore Purchase Orders and as agreed to by
--------------
Celestica, indicates the date on which material is to ship from Celestica's
premises.
Reasonable and Prudent Purchasing Practices: in the context of this
--------------------------------------------
Agreement indicates the minimization of Sycamore's liability for material
through Celestica's commercially reasonable efforts in initial procurement to
secure return and/or cancellation rights and to cancel, return, resell, or
use such materials elsewhere.
Specifications: in the context of this Agreement includes the bill of
--------------
materials, designs, schematics, assembly drawings and test specifications
provided by Sycamore to Celestica to
1
<PAGE>
manufacture products under this Agreement. Products will be considered to
have met the required Specification once they pass Sycamore's defined
production test procedures as agreed by the parties.
Products: in the context of this Agreement shall be the products
---------
manufactured by Celestica pursuant to this Agreement in accordance with the
Specifications.
Obsolete or Surplus Materials: in the context of this Agreement shall be
-----------------------------
materials impacted by changes which would not otherwise be consumed in the
(**) delivery horizon.
Currency: all currency defined in this agreement are in United States
--------
dollars.
WHEREAS, Celestica desires to enter into such a business relationship to perform
such services for Sycamore.
NOW, THEREFORE, in consideration of the mutual promises, covenants, and
Agreements contained in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Sycamore and Celestica hereby agree to the following terms and conditions for
the performance of Manufacturing Services by Celestica for Sycamore.
2.0 PURPOSE OF AGREEMENT
- -------------------------
2.1 This Agreement shall be an overriding Agreement, the Terms and Conditions
of which shall apply to any and all other subsequent Agreements between Sycamore
and Celestica during the term of the Agreement, unless a specific term or terms
of the Agreement are specifically excluded by a subsequent agreement, signed by
both parties, referencing this Agreement's title and effective date.
2.2 This Agreement is a contract for the purchase of the Recurring and Non-
Recurring Manufacturing services. Pricing shall be determined in accordance
with section 5 below.
2.3 From time to time Sycamore or its Affiliates may wish to purchase Recurring
and Non-Recurring Manufacturing Services directly from an Affiliate of Celestica
under these terms. In such event Sycamore or its Affiliate, as applicable,
shall issue a Purchase Order directly to the Celestica Affiliate. The Purchase
Order shall incorporate by reference the terms and conditions of this Agreement
and, with respect to that Purchase Order, this Agreement shall be interpreted as
if it had been entered into directly by the Celestica Affiliate and Sycamore or
Sycamore Affiliate, as applicable.
3.0 COORDINATION
- -----------------
3.1 Each parties' designated Coordinator to represent that party in the
implementation of this Agreement is set forth in section 23 below. Either party
may change its Coordinator by written notice to the other party.
4.0 TERM OF AGREEMENT
- ----------------------
4.1 This Agreement shall become effective on the latter of the signature dates
of the parties, and it shall continue in effect until either party provides
written notice of termination as permitted and in accordance with Section 21 of
the Agreement.
5.0 PRICING TERMS
- ------------------
5.1 The prices for Recurring Manufacturing Services shall be as the parties
agree in writing from time to time. Prices for Non-Recurring Manufacturing
Services shall be as the parties agree in writing from time to time. Sycamore
and Celestica shall agree on the pricing of all Recurring Manufacturing Services
and Non-Recurring Services to be provided to Sycamore by Celestica under this
Agreement. Pricing offers for Non-Recurring Manufacturing Services shall be as
the parties agree in writing from time to time and pricing
2
<PAGE>
determined by Sycamore Purchase Order and Celestica's acceptance and
acknowledgment of Sycamore's Purchase Order. All Sycamore Purchase Orders to
Celestica's facilities will be subject to the terms of this Agreement, except
and to the extent that the purchase order varies the terms hereof in accordance
with section 2.1 above and such terms are accepted by Celestica.
5.1.1 In cases where Celestica provides Sycamore with Recurring Material
Procurement Service, Sycamore and Celestica shall agree in writing as to
the pricing terms of such Service, based on Celestica's price as stated in
the costed Bill of Materials for those materials procured and used in
Sycamore Products. At the time of quoting a new product for Sycamore which
will utilize the Recurring Material Procurement Service, Celestica agrees
to provide to Sycamore a costed Bill of Materials for each Sycamore
assembly, based on (**) non-binding forecasted quantities for Sycamore's
review and approval. This unit costing is to consider the total
requirements for all components or sub-assemblies used on other Sycamore
assemblies for which Celestica will be providing Recurring Material
Procurement Services. The pricing agreed upon by the parties shall not
increase for (**) from the date of quotation. (**) Both parties agree that
any significant material adjustments shall also be reviewed and passed
through at issuance of a new Purchase Order by Sycamore, as agreed by the
parties. Within 10 business days prior to the close of such (**) period,
Celestica shall provide an updated costed Bill of Materials based on the
next (**) non-binding forecasted quantities and based on any adjustments
required as a result of variations between actual deliveries and forecasted
quantities during the previous (**) period.
5.2 All pricing based on direct labor rates for Recurring Manufacturing Service
(Assembly, Test, and Fabrication) shall be as agreed to in writing by the
parties.
5.3 At any time, in the event of extraordinary increases in the market price of
fuels, raw materials, equipment, labor and/or other items directly contributing
to Celestica's production costs for services for Sycamore, Celestica shall have
the right to request that Sycamore re-negotiate, in good faith, the prices to be
paid for the goods not yet shipped or services not yet performed. Celestica
shall provide and Sycamore shall have the right to review all documentation
evidencing the extraordinary increases incurred by Celestica. If, after good
faith negotiations, the parties are unable to resolve repricing, Sycamore and
Celestica shall have the right to terminate the specific service(s) or the
entire Agreement in accordance with the termination for convenience clause as
described in Section 21.
5.4 Celestica shall pay for those taxes imposed by any jurisdiction (such as
Sales Tax, if item is not for resale) where Celestica assembles, tests,
inspects, packages and/or manufactures Sycamore's goods which are directly
imposed upon the goods or services provided by Celestica to Sycamore before
Sycamore takes title to the goods. Sycamore shall pay for those taxes
associated with the transfer of title from Celestica to Sycamore.
5.5 Celestica agrees to follow Reasonable and Prudent Purchasing Practices
under this Agreement. This includes in relation to the quantities of materials
and/or services placed on order with vendors to meet the requirements of
Sycamore purchase orders. Vendor's minimum container sizes or order quantities
are authorized when the value over Sycamore purchase orders does not exceed (**)
per component part number per Celestica site. Celestica shall receive prior
written approval from Sycamore to procure materials that exceed such (**) over
materials required to meet Sycamore purchase orders.
5.6 Where lead times for materials are at any time longer than the period
covered by Purchase Orders set out in Section 6.2, Celestica shall be entitled
to order such material in accordance with the forecast and such materials' lead
times, as agreed upon by the parties and as reviewed on a quarterly basis.
Celestica will identify for Sycamore that material which is non-cancelable and
non returnable.
3
<PAGE>
6.0 SCHEDULING AND FORECAST
- ----------------------------
6.1 Authorization for Celestica to ship product to Sycamore is granted only
through shipment releases defined by Sycamore's Purchase Order. The Purchase
Order will include a description of the Services to be purchased, quantity,
routing instructions, requested delivery date, destination and price per this
Agreement. Such Purchase Orders shall constitute the only authorization for
Celestica to expend any money or incur any liabilities for which Celestica may
be reimbursed by Sycamore except as otherwise provided in sections 5.5 and 5.6
of this Agreement.
6.2 Sycamore will place Purchase Orders with Celestica in such a manner that
will provide Celestica with an ongoing (**) visibility of Sycamore's scheduled
delivery requirements. Purchase Orders may be issued in writing, by mail or
facsimile, or by electronic means as the parties may from time to time agree.
Celestica will acknowledge Purchase Orders as soon as reasonably practicable and
will notify Sycamore of acceptance (or rejection, with the reasons therefor),
of such Purchase Order within (**) of receipt. Any orders which are not rejected
within (**) of receipt shall be deemed accepted. Celestica cannot reject
any Purchase orders which conform to the terms of this Agreement. Celestica
shall be under no obligation to accept Purchase Orders which do not conform to
the terms of this Agreement.
6.3 Sycamore may make changes to shipping instructions, quantities or delivery
schedules specified in the Purchase Order releases as needed throughout the
duration of this Agreement, but in conformance with section 6 and section 7,
unless otherwise mutually agreed upon. Sycamore shall only have liability for
materials covered by accepted Purchase Orders and for material purchased in
accordance with sections 5.5 and 5.6 above; however, Celestica will make all
reasonable efforts to limit liabilities using Reasonable and Prudent Purchasing
Practices.
6.3.1 Celestica agrees to provide Sycamore with its commercially
reasonable efforts to expedite Recurring Manufacturing Services at a
rate greater than the quantity forecasted in the Agreement or
allowed by Table 6.3.1 contained in Appendix A. In the event
Celestica anticipates expediting charges, if any, these shall be
quoted to and authorized in writing by Sycamore prior to Celestica
committing resources.
6.3.2 A Delivery Date may be rescheduled only in accordance with Table
6.3.1 contained in Appendix A (whether in whole or in part),
provided, however, that if Sycamore's request to reschedule a
Delivery Date is made between (**) and (**) before the
originally scheduled delivery date, the rescheduled delivery date
may be no more than (**) past the original delivery date.
Celestica may treat any attempt to reschedule outside these
parameters as a cancellation.
6.4 If Sycamore reschedules a Delivery Date (**) or more past the original
delivery date, Sycamore may have the option of either taking delivery of the
product or paying Celestica an inventory carrying charge of (**). The charge in
this section shall apply to purchase orders placed after the signature date of
this Agreement.
6.5 Sycamore agrees to provide Celestica with a non-binding rolling forecast
for all services updated on Sycamore's quarterly basis. Such forecast will
reflect Sycamore's anticipated requirements for services to be procured during
the next (**). Furthermore, Sycamore and Celestica will schedule quarterly
forecast reviews. These reviews will be scheduled on the earliest mutually
agreeable date for each Sycamore year quarter. Note: The first month of each
Sycamore year quarter are February, May, August and November respectively.
Except as identified herein below, it is understood and agreed by the parties
that these non-binding forecasts are to be used by Celestica for the purpose of
capacity planning with no obligation and no liability on the part of Sycamore to
purchase these services except where Purchase Orders are issued as agreed in
section 6.1.
4
<PAGE>
6.6 Where Sycamore so directs, Celestica will procure materials from Sycamore's
approved vendor list. Prior to utilizing other vendors of materials, Celestica
will obtain Sycamore's prior written consent, which will not be unreasonably
withheld.
7.0 CANCELLATION
- -----------------
7.1 If Sycamore cancels any Purchase Order, or any part thereof, within (**)
of the scheduled delivery date or any Purchase Order or any part thereof, for
any prototype, pre production or pilot Purchase Orders or one time Purchase
Orders for Product, Sycamore shall pay to Celestica the full value of the
Purchase Order(s) so cancelled upon review of the charges by Sycamore. Celestica
will use reasonable efforts to mitigate the costs described above.
7.2 The charge in this section 7.2 shall apply to purchase orders placed after
the signature date of the this Agreement. If Sycamore cancels any Purchase Order
beyond (**) of the scheduled delivery date, or part thereof, Sycamore will pay
to Celestica:
(a) For finished Product at the full Product price;
(b) All costs of obsolete and/or surplus materials and related handling charges
determined in accordance with Section 9 of this Agreement together with all
amounts due pursuant to Section 6.1;
(c) Any investment or costs associated with Non Recurring Manufacturing
Services which have not been recovered by Celestica from Sycamore through
amortization or other means and were incurred by Celestica specifically in
relation to this Agreement with the prior agreement of Sycamore; and
(d) The pro-rated portion of the price of the cancelled Purchase Orders that
relates to Celestica's value add based on the stage in the production
process for the cancelled Product orders. Such value add shall be
determined in accordance with Celestica's normal accounting procedure to
determine its cost of Work In Progress ("WIP").
7.3 All charges under this section shall be documented and calculated by
Celestica. Celestica shall provide to Sycamore sufficient documentation in a
reasonable format to support all charges and calculations.
8.0 CHANGES
- ------------
8.1 Either party may initiate change notices regarding materials or
specifications. The Coordinator of the party initiating such change notices will
document and transmit the proposed change to the other party's Coordinator, who
shall acknowledge receipt. The Recipient of a change notice will use all
reasonable efforts to provide a detailed response including increased costs
within five (5) business days of receipt and in no event later than fifteen (15)
business days of receipt.
8.2 Both parties shall use their commercially reasonable efforts to implement
change notices as soon as possible.
8.3 The Coordinators shall discuss any change notices and any associated impact
(schedule or financial) and shall mutually agree to any change before it may be
implemented.
8.4 Neither party will unreasonably withhold or delay agreement to a change
notice and the parties will endeavor to agree and implement, at the earliest
opportunity, change notices relating to personal and product safety or
conformance to existing specifications.
5
<PAGE>
8.5 Until a change notice and any associated impact on any relevant contract
have been agreed in writing, the parties will continue to perform their
obligations under the relevant contract without taking account of the change
notice. However, if a change notice indicates that a change is required due to
safety reasons, then no further product will be manufactured without the prior
written consent of Sycamore until the parties have implemented the change
notice.
9.0 OBSOLETE/SURPLUS MATERIAL
- -------------------------------
9.1 When material is for any reason at any time rendered Obsolete or Surplus
Materials and such Obsolete or Surplus Material was ordered by Celestica against
an accepted Purchase Order or pursuant to Sycamore's written permission in
accordance with section 5.5 or 5.6, Celestica will:
(a) Use commercially reasonable efforts to provide to Sycamore within five (5)
business days and in no event later than fifteen (15) business days
following the date of the event causing the obsolescence or surplus (the
"Obsolescence Date") a notice of the potential cost of such obsolescence or
surplus including relevant handling charges; and
(b) for a period of (**) from the Obsolescence Date, Celestica will use its
Reasonable and Prudent Purchasing practices to mitigate Sycamore's
liability relating to the Obsolete or Surplus materials.
9.2 After such (**) period:
(a) Celestica will, at Sycamore's risk and expense, be entitled to deliver to
Sycamore (or if Sycamore so requests, otherwise dispose of) all obsolete or
surplus materials then held by Celestica once Sycamore has had the right to
formally review the mitigation efforts. This review shall take no longer
than (**) after which Celestica shall be entitled to deliver and invoice
Sycamore for such Product.
(b) Celestica shall invoice Sycamore for the agreed upon costs, including
reasonable, documented material handling charges which shall not exceed
(**) of the material purchase cost, which shall be paid by Sycamore in US
dollars (**) from date of invoice.
(c) All charges under this section shall be documented and calculated by
Celestica. Celestica shall provide to Sycamore sufficient documentation in
a reasonable format to support all charges and calculations.
10.0 DELIVERY
- -------------
10.1 Each Celestica shipment shall be accompanied by a Packing Slip which
includes as a minimum, Sycamore's part number, Purchase Order Number,
Celestica's Part Number, serial number and quantity. Packaging of the material
shall follow accepted commercial practices to protect the material from
Electrostatic Discharges (ESD) and normal handling from selected Freight
Forwarder.
10.2 Celestica shall deliver its services within a window of plus or minus (**)
of the Celestica agreed to "Delivery Date" specified on Sycamore's Purchase
Order.
10.3 Without the prior written consent of Sycamore, no partial shipments or over
shipments are allowed. Any claims for alleged shortages must be made known to
Celestica in writing within (**) of receipt at Sycamore or such claim is waived
by Sycamore.
10.4 Celestica shall make deliveries in accordance with the schedule set forth
and mutually agreed upon in Sycamore's Purchase Order as accepted by Celestica.
Title and risk of loss and damage for items on
6
<PAGE>
Sycamore's purchase orders will pass from Celestica to Sycamore F.O.B. Celestica
premises. Celestica shall use the freight forwarder chosen by Sycamore in its
sole discretion. Celestica shall ship all deliverables purchased under a
Purchase Order F.O.B. shipping point, freight prepaid in Sycamore's behalf so as
to be received, allowing for normal transit times, in accordance with the
schedule specified thereon. Celestica shall invoice Sycamore for freight charges
following delivery of items on Sycamore's purchase orders F.O.B. Celestica
premises.
10.5 Where such delays are caused by Celestica, Celestica shall be liable for
all expediting charges required to meet the delivery schedule set forth and
mutually agreed upon in Sycamore's Purchase Order. Sycamore shall be liable only
for standard lead-time costs and "surface" freight unless previously approved by
Sycamore in writing.
10.6 Sycamore may reject Products which are reasonably established a) to have
been materially damaged by Celestica at the delivery point as defined in 10.4 or
b) not to have met, in all material respects, the relevant specification
provided by Sycamore ("Rejected Products").
10.7 Sycamore will notify Celestica in writing of Rejected Products within (**)
of original delivery and will return Rejected Products to Celestica at
Celestica's expense within a further (**). Celestica shall submit an RMA to
Sycamore within (**) of Sycamore's notice of Rejected Products.
10.8 Celestica will then at its election either repair, replace, or credit
Sycamore in respect of Rejected Products. The cost associated with any such
repair or credit will be the responsibility of Celestica. In the case of
replacement or credit, title of the Rejected Product shall pass to Celestica on
delivery to Celestica. In the event of repair, Sycamore shall bear the expense
of redelivery of the repaired product.
10.9 In the absence of earlier notification of rejection, Sycamore will be
deemed to have accepted Products (**) after delivery, provided, however, that
the related product invoice contains all pertinent information relating to
Sycamore's purchase order and provided, further, that Sycamore's acceptance of
the Products shall in no way be deemed a waiver of warranty claims.
10.10 If, in Sycamore's opinion, late delivery becomes a persistent problem,
then Celestica's management from its Exeter NH facility and its Toronto
Headquarters shall meet with Sycamore management at Sycamore's facility to
discuss and resolve delivery issues in good faith.
11.0 WARRANTY
- --------------
Celestica warranty
11.1 Celestica warrants that all services will be performed in a workmanlike
manner in conformity with the mutually agreed to specifications for such
services as listed below and that the Products delivered under this Agreement
will be (1) free from defects in workmanship; and (2) further warrants that such
Products and services conform to the applicable Sycamore Purchase Specifications
at the time of manufacture. As part of the warranty provided by Celestica to
Sycamore with respect to the workmanship of its Products, Celestica further
warrants that all Product shall be manufactured in accordance with the following
standards:
Workmanship: J-STD-001
Solder: IPC-A-610, Class 2
ESD: MIL-STD-1686
This workmanship warranty shall apply for a period of (**) from the date the
services or Products are shipped from Celestica to the benefit of Sycamore. In
addition, Celestica shall, to the extent possible, obtain and pass through from
its suppliers any warranties with regard to quality, and workmanship and
intellectual property rights indemnification, if any, to and for the benefit of
Sycamore.
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11.2 Sycamore's remedy for breach of the warranty shall be, at Celestica's
option, repair or replacement by Celestica of defective Products returned to
Celestica at a facility of its choice. Prior to returning any Product that
Sycamore claims to be not as warranted by Celestica, Sycamore shall follow
Celestica's reasonable Return Material Authorization ("RMA") Procedures.
Celestica shall promptly provide and shall not unreasonably withhold or delay
the issuance of a RMA number. Celestica shall be responsible for all warranty
expenses plus the costs of outgoing shipment for warranty repair. All repairs
and replacements will be made and Product will be returned to Sycamore, or
delivered to destination as directed by Sycamore, within (**) of receipt by
Celestica. Celestica recognizes that as the Contract Manufacturer of Sycamore
product that Sycamore does not possess all the test equipment necessary for in-
depth testing prior to return to Celestica. In respect of any Products which are
found by Celestica not to be defective under Celestica's warranty, Sycamore will
pay to Celestica all redelivery costs and a `no defect found' charge determined
by the then current test time per Product for each such Product and the hourly
charge as agreed in writing by the parties. In any instance where Celestica
fails to deliver repaired or replaced Product within (**) of receipt of
defective product, then Sycamore shall be entitled to a credit of the purchase
price of the defective Product at the end of such (**) period. If any returned
Products for which such credit has been issued are subsequently repaired within
(**) of the original date of return, Sycamore agrees to purchase such repaired
Product from Celestica at the previously credited price.
11.3 (**)
(**)
11.4 The above warranties will apply in all circumstances except the following:
(a) Products which have been misused, modified, damaged, placed in an
unsuitable physical or operating environment or maintained improperly or
caused to fail by any product or service not supplied by Celestica or to
any Products which have been subjected to any repair not authorised in
writing in advance by Celestica;
(b) any defect caused by Sycamore or a third party or by an error or omission
or design or other fault in any Sycamore Information or in any other
drawings, documentation, data, software, information, know-how or
Materials provided or specified by Sycamore;
(c) prototypes and pre-production or pilot versions of Products which will be
warranted to conform to the Specification; or
(d) Products which, at Sycamore's specific request, did not undergo
Celestica's standard inspection and test procedure.
11.5 Celestica will repair and/or upgrade Products which are outside the
warranty period at mutually agreed prices and terms and conditions to be
negotiated by the parties on a per product basis.
11.6 THE FORGOING WARRANTIES ARE FOR THE SOLE BENEFIT OF SYCAMORE AND ARE
CELESTICA'S SOLE OBLIGATION AND LIABILITY, AND SYCAMORE'S EXCLUSIVE REMEDIES,
FOR CLAIMS BASED ON DEFECTS IN OR FAILURE OF ANY PRODUCT OR SERVICE
8
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OR THE SUBJECT MATTER OF ANY SERVICE AND ARE IN LIEU OF ALL OTHER WARRANTIES AND
CONDITIONS EXPRESSED OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OR
CONDITIONS OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
11.7 Celestica agrees to maintain in good working order the tooling contracted
by Sycamore as Non Recurring Services for the lifetime of this Agreement or for
a previously agreed upon lifetime of such tooling. Celestica is exempted from
maintaining such Non Recurring Manufacturing Service tooling that has been
obsoleted by Sycamore or for which Sycamore mandated changes have deteriorated
items beyond the scope of general maintenance practices.
Customer Warranty
11.8 Sycamore warrants that to the best of Sycamore's knowledge, Sycamore
information and Sycamore tooling and any other items or information supplied by
Sycamore are accurate and contain all items and information of Sycamore
necessary for Celestica to manufacture and deliver the Products and Services
pursuant to Contracts.
11.9 Celestica will promptly notify Sycamore of any manufacturing problems
which it encounters and believes are related to the Product design or any
Sycamore Information or Sycamore tooling. The parties will jointly determine
whether such manufacturing problems are attributable to the Product design or
any Sycamore information or Sycamore tooling. Where such problems are so
attributable, Sycamore will be responsible for all actual costs incurred by
Celestica to implement a mutually agreed to correction plan to correct such
problems. Celestica will not implement any changes to the Product design or any
Sycamore information or Sycamore tooling without Sycamore's prior approval.
Where any such changes result in the delay of any scheduled delivery date for
Product, Celestica will have no liability for such resulting delay and Sycamore
may not cancel any orders for Products affected thereby.
12.0 INDEMNIFICATION
- ---------------------
12.1 Sycamore agrees to indemnify Celestica against damages finally awarded by
a court of competent jurisdiction arising out of or in settlement, as agreed to
by Sycamore and Celestica, of any claims for direct losses, damages, costs and
expenses (including reasonable attorney's fees) which Celestica may hereafter
become responsible for or be required to pay as a result of any negligent act,
error or omission associated with the Specification, or any other materials,
information or instructions relating to or in compliance with the Specification
provided, however, that Sycamore is given prompt notice of the claims, sole
control over the defense and/or settlement of the claim, and at Sycamore's
expense, is given Celestica's full cooperation in the defense of same.
12.2 Celestica agrees to indemnify Sycamore against damages finally awarded by
a court of competent jurisdiction arising out of or in settlement, as agreed to
by Sycamore and Celestica, of any claims for direct losses, damages, costs and
expenses (including reasonable attorney's fees) which Sycamore may incur or may
hereafter become responsible for or be required to pay as a result of any
negligent act, error or omission of Celestica in performance of the Recurring
and Non-Recurring Manufacturing Services, or its negligence or willful
misconduct, provided, however, that Celestica is given prompt notice of the
claims, sole control over the defense and/or settlement of the claims, and at
Celestica's expense, is given Sycamore's full cooperation in the defense of
same.
13.0 PAYMENT TERMS
- -------------------
13.1 Celestica shall deliver to Sycamore invoices for all goods provided and
services performed under this Agreement. Invoices will be sent to Sycamore no
earlier than the shipment of Recurring Manufacturing Services or the acceptance
of Non Recurring Manufacturing Services. Payments shall be due and payable (**)
from receipt of an accurate Celestica invoice containing the information set
forth in section 13.2 below. (**)
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13.2 Unless otherwise provided for by Sycamore, Celestica's Invoices shall be
in writing and contain the following applicable information:
* Sycamore's Purchase Order Number
* Sycamore's Product Code
* Quantity of Products or Services
* Unit Price of Products or Services
* Extended Price
* F.O.B. point
* Date of Shipment
* Full copy of Packing Slip for Items Listed on Invoice
All amounts due to Celestica are payable at Celestica's designated address or at
such other place as Celestica may hereafter designate in writing to Sycamore.
13.3 If Sycamore becomes delinquent in payment of any undisputed, material
amounts due to Celestica without reasonable cause, Celestica may withhold
shipment of services hereunder until all the obligations to Celestica have been
brought current. Celestica's election to withhold shipment shall not relieve
Sycamore of any obligations hereunder. If Sycamore fails to make any payment by
the due date Celestica may, in addition to its other rights and remedies, charge
a late payment charge at a rate of (**). Celestica will not charge such late
payment charge where Sycamore, in good faith, disputes such payment or invoice
or in the event that the related invoice does not contain the information
required under Section 13.2 above. Sycamore shall notify Celestica of any such
dispute within ten (10) days of the receipt of the invoice in question. With
regard to those portions of invoices which Sycamore does not dispute, Sycamore's
dispute does not relieve Sycamore's obligations to pay the undisputed portion of
the invoice.
13.4 Celestica shall send its Invoices (containing the information required by
Section 13.2 above) for goods provided and services performed under this
Agreement to Sycamore Network, Inc. Attention: Accounts Payable, at the address
specified on Sycamore's Purchase Order.
13.5 Sycamore will be solely responsible for and will pay all taxes including
value added taxes, duties or other governmental or regulatory charges in any
country resulting from the transfer of title from Celestica to Sycamore, except
for any income, corporate or other related taxes based upon Celestica's income
or property for which Celestica is directly liable.
13.6 For so long as Sycamore remains in good credit standing with Celestica and
in the absence of any material change in Sycamore's credit circumstances,
Celestica accepts the credit liability of any order once it is accepted and
cannot request Sycamore to pay down any credit amount after the order is
accepted.
14.0 INTELLECTUAL PROPERTY
- ---------------------------
14.1 All existing intellectual property included but not limited to all
patents, applications for patents, copyrights, mask works, trade secrets and
other intellectual property rights ("Intellectual Property") owned by or
licensed to Sycamore will continue to be owned by Sycamore and, accordingly,
Celestica is licensed to use and disclose only such of it as may be necessary
for Celestica to perform its obligations under this contract. With respect to
any Intellectual Property licensed to Sycamore by third parties, Sycamore
warrants that such license is in good standing and includes all necessary rights
of sub-licensing to permit the sub-license to Celestica hereunder solely for
Celestica's use in performing its obligations under this Agreement.
14.2 All existing Intellectual Property of Celestica will continue to be owned
by Celestica. With respect to any Intellectual Property licensed to Celestica by
third parties, Celestica warrants that such license is in good standing and
includes all necessary rights to permit Celestica to perform its obligations
under this
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Agreement.
14.3 All Intellectual Property created in the course of Celestica's performance
of services under this Agreement (i) which is derived from or is an improvement
to or is unique to Sycamore's Products, and (ii) the development of which
Sycamore has contracted for and paid in full in accordance with the terms of
this Agreement, will be owned by Sycamore. (**) All Intellectual Property
created in the course of Celestica's performance of services under this
Agreement which are derived from or improvements to Celestica's existing
Intellectual Property or Celestica's manufacturing or design processes will be
owned by Celestica. (**)
14.4 Nothing in this Agreement or any contract grants or can be capable of
granting to Sycamore (whether directly or by implication, estoppel or otherwise)
any rights to any Intellectual Property owned by or licensed to Celestica or any
Affiliate of Celestica.
14.5 Without the other party's prior written consent, neither party shall
disclose or make other use of know-how, testing materials, intellectual
property, the terms of this contract including prices, specifications for
Products, production schedules or other performance activities under this
Agreement, except in performance of its obligations under this Agreement. Such
information shall be subject to the confidentiality provisions of section 25
below.
15.0 CUSTOMER PROPERTY
- ----------------------
15.1 All Sycamore information and tooling may be used by Celestica as required
by Celestica only for the purposes of this Agreement.
15.2 All Sycamore information and all Sycamore tooling (for which, if
applicable Celestica has been paid in full) will remain Sycamore's property and
will be treated by Celestica with substantially the same care as it treats its
own property of a similar nature, but in no event less than a reasonable degree
of care, and will be subject to the confidentiality provisions of section 25
below.
15.3 The costs of maintenance, calibration and repair of Sycamore tooling
supplied by Sycamore shall at all times be the responsibility of Sycamore. The
costs of maintenance, calibration and repair of Sycamore tooling that Sycamore
pays Celestica to obtain on Sycamore's behalf shall at all times be the
responsibility of Celestica, except under circumstances in which changes in such
tooling is requested by Sycamore. In such circumstance, Sycamore shall be
responsible only for the costs associated with implementing such change.
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15.4 Celestica shall (1) exercise due care in its possession of tooling and
information of Sycamore. (2) sequester and conspicuously mark Sycamore
materials, and (3) allow site inspections by Sycamore.
15.5 Celestica shall carry insurance to cover the risk of loss of Sycamore's
property under its control in accordance with section 17.1.
16.0 QUALITY ASSURANCE
- ----------------------
16.1 Celestica will maintain quality assurance systems for the control of
material quality, processing, assembly, testing, packaging and shipping in
accordance with its usual policies and practices. The workmanship standard to be
used in building Product is IPC A-610 Rev. B Class 2, as published by the
Institute for Interconnecting and Packaging Electronic Circuits.
16.2 Celestica will perform its normal test procedures relating to Products and
services. If Celestica performs tests using test equipment, procedures and
software provided by Sycamore, Celestica will have no liability for defects in
Products where failure to isolate the defect is attributable to such equipment,
procedures or software.
16.3 Either party may during normal business hours and following reasonable
notice and subject to the other party's normal security requirements, review the
other party's facilities and quality control procedures as reasonably necessary
for the first party to satisfy itself of the other party's compliance with its
obligations under this Agreement.
16.4 The parties will endeavor to meet quarterly to discuss and resolve any
issues which may have arisen including those relating to quality, performance,
engineering changes, obsolescence or surpluses.
16.5 The parties will evaluate and mutually agree upon any additional quality
requirements going forward.
17.0 CELESTICA'S REPRESENTATIONS AND WARRANTIES
- ------------------------------------------------
17.1 Celestica represents and warrants that it has insurance coverage with an A
rated carrier that is acceptable to Sycamore in the amounts listed below:
General Liability: US$(**)
Worker's Compensation: As required by local law of the State in which the
facility is located
Errors and Omissions: US$(**) per claim and US$(**) annual aggregate
Product Liability: US$(**) per claim and US$(**) annual
aggregate
17.2 Celestica represents and warrants that it has the following certifications
and will keep the following certifications at Celestica's sole expense for the
duration of this Agreement:
ISO 9001 UL CSA CE
17.3 Celestica represents and warrants that Celestica's operations and the
Recurring Manufacturing Services, Non-Recurring Manufacturing Services and
Recurring Material Procurement shall not be affected or interrupted by (1) the
date change from December 31, 1999 to January 1, 2000; (2) manipulating data
dated before or after 1999; (3) processing leap years.
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17.4 Celestica represents and warrants that it shall maintain all finished good
or consigned materials which have been purchased by Sycamore and are on
Celestica's sites in a secure and separate location, labeled as Sycamore's
property, and free of all liens and attachments.
18.0 HAZARDOUS MATERIALS/TOXIC SUBSTANCES
- ------------------------------------------
18.1 Materials subject to the Toxic Substance Control Act, (15 USC 2601 et.
seq.), the Resource Conservation and Recovery Act (42 USC 6901 et. seq.) and the
Environmental Protection Agency Hazardous Waste Management Program (40 CFR 260
et. seq.) shall be SHIPPED, TRANSPORTED, DISPOSED, MARKED, LABELED, TAGGED,
PLACARDED, PACKAGED, IDENTIFIED, USED, PRESERVED, AND DOCUMENTED BY CELESTICA AS
REQUIRED BY APPLICABLE FEDERAL REGULATIONS INCLUDING BUT NOT LIMITED TO 49 CFR
172 ET. SEQ. AND 29 CFR 1910.1200 ET. SEQ. IN ADDITION, CELESTICA SHALL SUPPLY
THE FOLLOWING INFORMATION: DESCRIPTION OF HAZARDOUS MATERIALS AND SHIPPING NAME,
HAZARD CLASS OR DIVISION, IDENTIFICATION NUMBERS, PACKING GROUP AND LABELS PER
49 CFR 172.202 ET SEQ.
18.2 Celestica shall comply with the Hazard Communication Standard, 29 CFR
1910.1200. Celestica shall ensure that the name of the items identified on the
Material Safety Data Sheets is identical to the name which appears on the label
of the product shipped to Sycamore. Celestica shall provide a copy of the
Material Safety Data Sheet with each shipment to Sycamore.
18.3 Celestica shall comply with Section 313 of the Emergency Planning and
Community Right to Know Act of 1986 and 40 CFR Part 372, if applicable. As part
of such compliance, Celestica shall furnish its account the following
information with the initial shipment of each item to Sycamore:
(1) A statement that the supplies contain chemicals which are subject
to Section 313 of Title III of the Superfund Amendments and
Reauthorization Act of 1986 and 40 CFR 372.45.
(2) The name and associated Chemical Abstract Service Registry number
of each chemical which has been incorporated in the supplies and which
is listed in the specific Toxic Chemical Listings contained in 40 CFR
372.45.
(3) The percentage by weight of each toxic chemical component of the
supplies shipped.
18.4 Shipment of hazardous materials shall be by common carrier authorized to
handle the material and in accordance with 49 CFR Parts 100-109 and the "ATA
"Dangerous Goods Regulations" or "International Maritime Dangerous Goods Code"
(if applicable). This includes but is not limited to:
. Shipping papers must include an emergency contact number.
. Shipping papers and packages must show the technical names listed
in parenthesis, the association to the basic description, and in
the case of mixtures, list the major hazardous components by
percentage contributing to the hazard.
. Celestica shall indicate on the shipping papers whether the
material presents Poisonous by Inhalation (PIH) hazards.
. At Sycamore's request, Celestica will provide test reports
indicating Performance Oriented Packaging compliance to facilitate
Sycamore's reshipment of Celestica's supplies.
. Celestica shall mark on all interior packages and shipping
containers the closed cup flash point of flammable and combustible
liquids.
18.5 The supplies manufactured by Celestica for Sycamore may not be
manufactured with ozone depleting substances nor may such supplies contain ozone
depleting substances unless approved by Sycamore in writing. If so approved the
following warning statement shall apply to such items:
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WARNING: Manufactured with CFC-11,12,13, 111, 112, 113, 114, 115, 211, 212, 213,
214, 215, 216, 217, Halons 12211, 1301, 2402, Carbon Tetrachloride or Methyl
Chloroform substances which harm public health and environment by destroying the
ozone in the upper atmosphere.
18.6 DESCRIPTION OF HAZARDOUS MATERIAL ON SHIPPING PAPERS - The shipping
description of a hazardous material on a shipping paper must include:
. The proper shipping name prescribed for the material in Column 2 of
49 CFR 172.
. The hazard class or division prescribed for the material as shown
in Column 3 of 49 CFR 172 (Table) (Class names, IMO class and
division numbers or subsidiary hazard classes may be entered in
parentheses following the numerical hazard class). The
identification number (preceded by "UN" or "NA" as appropriate)
prescribed for the material as shown in Column 4 of 49 CFR 172
(Table).
. The packing group, if any, prescribed for the material in Column 5
of 49 CFR 172 (Table).
19.0 MINORITY/WOMEN BUSINESS ENTERPRISES
- ------------------------------------------
Celestica acknowledges that it is Sycamore's request that, when commercially
reasonable, Sycamore's suppliers award subcontracts to minority business
enterprises. As used in this Agreement "minority business enterprise" means a
business at least 50% of which is owned, controlled and operated by minority
group members, or in the case of publicly owned business at least 51% of the
stock of which is owned by minority group members. A women's business enterprise
means a business which is 51% owned, controlled and operated by women. For the
purpose of this definition, minority group members are Blacks, Hispanics, Asian
Pacific Islanders, American Indians and Alaskan Natives. Supplier may rely on
written representation by subcontractors regarding their status as minority or
women's business enterprises in lieu of an independent investigation. Within
sixty (60) days after the date of this Agreement and thereafter upon Sycamore's
written request and on a semi-annual basis thereafter, Celestica shall provide
to Sycamore a written report, for each site in the United States where Product
is manufactured for Sycamore, signed by an authorized individual which details
the percentage of minority business enterprise subcontracts awarded from such
sites relative to the revenue generated from Sycamore's business during that
period under this Agreement. Notwithstanding the foregoing, any failure by
Celestica to award subcontracts to minority business enterprises shall not
constitute a breach of this Agreement.
20.0 EXCLUSIONS AND LIMITATION OF LIABILITY
- -------------------------------------------
20.1 Neither party excludes or limits its liability for death or personal
injury resulting from its negligence nor liability for breach of any term
implied by statute to the extent that such liabilities cannot by law be limited
or excluded.
20.2 Subject only to clause 20.1 above, under no circumstances will either
party have any liability in respect of this Agreement, whether in contract or
for negligence or otherwise and whether related to any single event or series of
connected events, for any of the following:
(a) any liability in excess of:
(i) in the case of damage to or loss of tangible property, the value of
such property; and
(ii) in any event, and in respect of any other liability, an amount equal
(**)
(b) any liability for any incidental, indirect or consequential damages or loss
of business, loss of records or data, loss of use, loss of profits, revenue
or anticipated savings or other economic loss whether or not Celestica was
informed or was aware of the possibility of such loss;
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(c) subject to Section 12 and except for claims relating to Intellectual
Property infringement, any third party claims for any loss, damage, costs
or expense
20.3 Neither party may bring an action under this Agreement more than two (2)
years after the cause of action arose.
20.4 Neither party will have liability to the other for any failure to perform
any obligation under this Agreement or any purchase order to the extent such
failure was due to the act or omission of the other party or any agent of the
other party or any supplier from whom Celestica purchases components or services
under terms, conditions or pricing arrangements made between Sycamore and such
supplier.
21.0 TERMINATION
- -----------------
21.1 After notice of termination is tendered, each Coordinator shall prepare an
orderly termination of the Agreement, and for return to the owning party its
materials, equipment, records, specifications, and CONFIDENTIAL INFORMATION.
The parties agree to provide as orderly a transition toward the effective date
of termination as possible.
21.2 Sycamore may terminate this Agreement for any reason by providing written
notice to Celestica or Celestica's Affiliate, as applicable, at least (**) in
advance of the requested termination date.
21.3 Celestica may terminate this Agreement for any reason by providing written
notice to Sycamore at least one year in advance of the requested termination
date.
21.4 Either party may terminate this Agreement at any time for cause in the
event that any material default by the other remains uncured for more than (**)
following written notice or in the event that other party files or has filed
against it any bankruptcy, insolvency or receivership proceeding which prevents
or presents a reasonable risk of preventing such party from fulfilling is
obligations hereunder, and which is not cured within (**) of written notice.
The written notice shall specify the conditions constituting the default and the
corrective action, if any, which must be undertaken to cure such default. If at
the noticed date of termination the non defaulting Party in the exercise of good
faith, determines that the noticed condition of default has been cured or that
satisfactory arrangements have been undertaken to attempt the cure, then this
Agreement shall continue in force and effect.
21.5 Upon termination by Sycamore pursuant to sections 21.2 or 22.2 or by
Celestica pursuant to sections 21.3 or 21.4, Sycamore shall be responsible for:
. The scheduled and actual work-in-process for Sycamore,
. Up to (**) inventory of all raw materials required for Sycamore Purchase
Orders,
. Finished goods,
. Any investment incurred by Celestica specifically in relation to this
Agreement with the prior written agreement of Sycamore and which has not
been recovered by Celestica from Sycamore through amortization or other
means;
. All obsolete and surplus materials reported in accordance with section
9,
. All non-cancelable Celestica Purchase Orders placed in accordance with
this Agreement, and,
. Cancellation or restocking charges for Celestica Purchase Orders placed
on behalf of Sycamore, where Reasonable and Prudent Purchasing Practices
have been employed by Celestica.
All packaging expense for shipment shall be borne by Celestica and all freight
expense borne by Sycamore in accordance with paragraph 10.4.
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All charges under this section shall be documented and calculated by Celestica.
Celestica shall provide to Sycamore sufficient documentation in a reasonable
format to support all charges and calculations.
21.5 Notwithstanding any termination, any services performed by Celestica
following the termination of this Agreement shall be subject to the terms and
conditions of this Agreement, unless the parties otherwise agree.
22.0 FORCE MAJEURE
- ------------------
22.1 Neither party shall be liable for any delay in performance or failure to
perform obligations (other than payment obligations), in whole or in part, when
due to a labor dispute, strike, war or act of war (whether an actual declaration
is made or not), insurrection, riot, civil commotion, act of public enemy,
accident, fire, flood, or other act of God, act of any governmental authority,
judicial action, or similar causes beyond the reasonable control of such party.
If an event of Force Majeure occurs, the other party shall be immediately
notified.
22.2 If an event of Force Majeure continues for a period of sixty (60) days,
Sycamore shall have the right to terminate this Agreement upon a further 30 days
notice.
22.3 Interruption of scheduled deliveries to Sycamore from Celestica due to the
change in the millennium or occurence of the leap year is not covered by
paragraph 22.1.
22.4 If an event of Force Majeure occurs to Celestica, Celestica will use its
commercially reasonable efforts to put into effect an alternate plan to continue
supplying Products and services to Sycamore, including but not limited to,
moving the operations to another Celestica facility, where appropriate, in order
to continue production and minimize downtime.
23.0 NOTICES
- -------------
23.1 In any case where a notice or other communication is to be given or made
pursuant to any provision of this Agreement, such notice or communication will
be deemed to be received when given or made as follows:
* If by hand delivery, on the day delivered,
* If by telex, cable, fax, or telegraph, on the next business day
following the date sent,
* If by mail, on the third calendar day following posting by
certified or registered mail, return receipt requested.
23.2 All such notices mailed to Sycamore will be sent postage prepaid and
addressed to:
Mr. John Dowling Copy to: Mr. Steve Sabounjian
Sycamore Networks, Inc.
10 Elizabeth Road
Chelmsford, MA 01824
FAX # (978) 256-3434
AND ALSO TO:
Sycamore Networks, Inc.
10 Elizabeth Road
Chelmsford, MA 01824
Attn: General Counsel
FAX # (978) 244-1097
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23.3 All such notices mailed to Celestica will be sent postage prepaid and
addressed to:
Jim Kelly Alternate: Dave Roy
General Manager
Celestica Corporation
100 Domain Drive
Exeter, NH 03833
AND ALSO TO:
Stuart Church
Corporate Contracts
Celestica International Inc.
844 Don Mills Road, 28/218
Toronto, Ontario
M3C 1V7
FAX # 416-448-5895
23.4 Coordinators as defined in 3.1 are:
For Celestica: Ken Kimball
Business Development Manager
Celestica Corporation
100 Domain Drive
Exeter, NH 03833
For Sycamore: Mr. John Dowling
Sycamore Networks, Inc.
10 Elizabeth Road
Chelmsford, MA 01824
24.0 NON-ASSIGNMENT
- --------------------
24.1 This Agreement may not be assigned without prior written agreement and
approval of the other party, which approval shall not be unreasonably withheld
or delayed. Either party may, however, assign this Agreement in the event of a
merger or a sale of all or substantially all of such party's assets or stock to
which assignment the both parties hereby consent. That the party subject to such
merger or sale shall give written notice thereof to the other party.
25.0 CONFIDENTIALITY / NON-DISCLOSURE
- -------------------------------------
25.1 The parties will comply with the provisions of the confidentiality
agreement between Celestica North America Inc. and Sycamore Networks, Inc.
referenced as the Confidentiality Agreement effective October 6, 1998.
25.2 Nothing in this Agreement gives either party a right to use the other
party's name, trade mark(s), trade name(s) or to refer to, or disclose, the
existence of this Agreement or any Contract or any terms and conditions of this
Agreement or any Contract, whether directly or indirectly in connection with any
marketing or other activities without the other party's prior written consent.
25.3 Non-Solicitation. Sycamore and Celestica agree that they shall not,
----------------
during the term of this Agreement, nor for a period of twelve (12) months after
its termination, solicit for employment, or employ, whether as
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an employee or independent contractor, any personnel who are currently employed
by the other party during the said term, without prior consent in writing from
the other party.
26.0 SUPERSEDING EFFECT
- ------------------------
26.1 This Agreement, including all attachments, constitutes the entire
Agreement between the parties with respect to the subject matter hereof, and
supersedes all previous communications, representations, understandings and
Agreements, either oral or written between the parties or any official or
representative hereof. This Agreement shall be modified only by an instrument
in writing signed by duly authorized representatives of the parties.
26.2 Any standard terms and conditions set out in any Sycamore purchase order
form or any Celestica invoice or order acknowledgement will be without effect.
26.3 Any rights or obligations under this Agreement which by their nature
continue after termination will remain in effect until they are completed.
26.4 If there is any conflict or inconsistency between the terms of any
purchase order or other documents comprised in a contract and the terms of this
Agreement then the terms of this Agreement will prevail over the purchase order
or any other such document.
27.0 APPLICATION LAW
- --------------------
27.1 This Agreement shall be interpreted in all respects in accordance with the
laws of the Commonwealth of Massachusetts, USA exclusive of any provisions of
the United Nations Convention on the International Sale of Goods and without
regard to principles of conflict of laws. The parties submit to the non-
exclusive jurisdiction of the courts of the Commonwealth of Massachusetts. The
parties hereto expressly waive any right they may have to a jury trial and agree
that any proceedings under this Agreement shall be tried by a judge without a
jury.
28.0 GENERAL
- -------------
28.1 In the manufacture and sale of product Celestica agrees to comply with all
applicable state and federal laws and regulations, including without limitation
the requirements of the Fair Labor Standards Act of 1938 (as amended) and to
provide disclosure as to all hazardous substances utilized in the manufacture of
the product.
28.2 The parties are each independent contractors and not joint ventures,
partners, agents or representatives of the other. Neither party has any right
to create any obligation on the part of the other party. This Agreement shall
not prevent Celestica or its Affiliates from marketing, acquiring, or developing
materials, products or services which are similar or competitive to those of
Sycamore. Celestica may pursue activities independently with any third party,
even if similar to the activities under this Agreement.
IN WITNESS WHEREOF, the parties hereto execute this Manufacturing Services
Agreement to be effective on the date referenced above.
Sycamore Networks, Inc Celestica Corporation
By: /s/ John Dowling By: /s/ James Kelly
------------------------ --------------------------
Name: John Dowling Name: James Kelly
---------------------- ------------------------
Title: V.P. Operations Title: VP/GM Celestica
-------------------- -----------------------
Date: 2/8/00 Date: 2/9/00
---------------------- ------------------------
18
<PAGE>
Appendix A
To
Sycamore Networks, Inc. Manufacturing Services Agreement
Table 6.3.1
Rescheduling Allowances
[**]
19
<PAGE>
Appendix B
To
Sycamore Networks, Inc. Manufacturing Services Agreement
In Circuit Test Fixtures and Programs
ESS Screening Code
Backing Plates for Compliant Pin Connectors
Specific Product Design Efforts according to Specifications (for example, the SN
16000 SMC Project)
20
<PAGE>
EXHIBIT 10.12
PROMISSORY NOTE
February 25, 1999 $17,500.00
FOR VALUE RECEIVED, the undersigned, Eric Swanson, hereby promises to pay
to the order of Sycamore Networks, Inc. (the "Company") the principal amount of
Seventeen Thousand Five Hundred Dollars ($17,500.00).
All principal and accrued interest hereon shall be due and payable upon the
earlier of:
(i) February 25,2004; and
(ii) The first date on which the undersigned ceases to serve as an
employee of, or consultant to, the Company.
The undersigned may prepay this Note, in whole or in part, at any time and
from time to time without premium or penalty. In addition, the undesigned
agrees that he shall apply the proceeds from any sale of shares of Common Stock
of the Company to the prepayment of this Note.
This Note shall be governed by the laws of the Commonwealth of
Massachusetts.
Executed under seal as of the date first above written.
/s/ Eric Swanson
--------------------
Eric Swanson
<PAGE>
EXHIBIT 10.13
PROMISSORY NOTE
June 16, 1999 $162,500.00
FOR VALUE RECEIVED, the undersigned, Eric Swanson, hereby promises to pay
to the order of Sycamore Networks, Inc. (the "Company") the principal amount of
One Hundred Sixty-Two Thousand, Five Hundred Dollars ($162,500.00).
All principal and accrued interest hereon shall be due and payable upon the
earlier of:
(i) June 16,2004; and
(ii) The first date on which the undersigned ceases to serve as an
employee of, or consultant to, the Company.
The undersigned may prepay this Note, in whole or in part, at any time and
from time to time without premium or penalty. In addition, the undersigned
agrees that he shall apply the proceeds from any sale of shares of Common Stock
of the Company to the prepayment of this Note.
This Note shall be governed by the laws of the Commonwealth of
Massachusetts.
Executed under seal as of the date first above written.
/s/ Eric Swanson
---------------------
Eric Swanson
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form
S-1 of our report dated August 23, 1999, except for the information presented in
the third paragraph of Note 6 for which the date is February 11, 2000, relating
to the financial statements of Sycamore Networks, Inc., which appears in such
Registration Statement. We also consent to the references to us under the
headings "Experts" and "Selected Consolidated Financial Data" in such
Registration Statement.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 17, 2000
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JULY 31, 1998 AND JULY 31, 1999 AND THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SEVEN MONTHS ENDED JULY 31, 1998
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<PERIOD-END> JUL-31-1998 JUL-31-1999
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<SECURITIES> 3,082 7,020
<RECEIVABLES> 0 11,410
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<PP&E> 527 6,263
<DEPRECIATION> (27) (975)
<TOTAL-ASSETS> 5,081 57,912
<CURRENT-LIABILITIES> 138 11,710
<BONDS> 0 4,054
5,621 55,771
0 0
<COMMON> 21 69
<OTHER-SE> (699) (13,692)
<TOTAL-LIABILITY-AND-EQUITY> 5,081 57,912
<SALES> 0 11,330
<TOTAL-REVENUES> 0 11,330
<CGS> 0 8,486
<TOTAL-COSTS> 0 8,486
<OTHER-EXPENSES> (793) (22,893)
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<INTEREST-EXPENSE> 100 559
<INCOME-PRETAX> (693) (19,490)
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<CHANGES> 0 0
<NET-INCOME> (693) (19,490)
<EPS-BASIC> (0.18) (2.09)
<EPS-DILUTED> (0.18) (2.09)
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JANUARY 29, 2000 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE SIX MONTHS ENDED JANUARY 29, 2000 AND IS QUALIFIED IN ITS
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<MULTIPLIER> 1,000
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-2000
<PERIOD-START> AUG-01-1999
<PERIOD-END> JAN-29-2000
<CASH> 137,943
<SECURITIES> 150,633
<RECEIVABLES> 11,980
<ALLOWANCES> 0
<INVENTORY> 25,805
<CURRENT-ASSETS> 329,541
<PP&E> 14,083
<DEPRECIATION> (2,379)
<TOTAL-ASSETS> 344,678
<CURRENT-LIABILITIES> 37,498
<BONDS> 0
0
0
<COMMON> 236
<OTHER-SE> 306,944
<TOTAL-LIABILITY-AND-EQUITY> 344,678
<SALES> 48,559
<TOTAL-REVENUES> 48,559
<CGS> (25,736)
<TOTAL-COSTS> (25,736)
<OTHER-EXPENSES> (34,679)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,505
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<NET-INCOME> (7,351)
<EPS-BASIC> (0.07)
<EPS-DILUTED> (0.07)
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