<PAGE>
As filed with the Securities and Exchange Commission on March 9, 2000
Registration No. 333-30630
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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SYCAMORE NETWORKS, INC.
(Exact name of registrant as specified in its charter)
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Delaware 3576 04-3410558
(State 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)
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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. [_]
--------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued March 9, 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 March 7, 2000, the last reported sale price of the common stock was
$172.00 per share.
-----------
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 6.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
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 of common stock to cover over-allotments. Morgan
Stanley & Co. Incorporated expects to deliver the shares to purchasers on March
, 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................ 48
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 began shipping 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 $172.00, 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 $2,344,824
Working capital............................................ 292,043 2,348,291
Total assets............................................... 344,678 2,400,926
Total stockholders' equity................................. 307,180 2,363,428
</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 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. 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
. political and economic instability.
13
<PAGE>
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
As part of our ongoing business development strategy, we consider
acquisitions and strategic investments in complementary companies, products or
technologies. We are currently evaluating potential transactions and
transaction prospects, but do not currently have any agreements or commitments
with respect to any acquisition or investment. In the event of any 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 assuming full exercise
of the over-allotment option. 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 $172.00 per
share will be approximately $2.1 billion after deducting estimated offering
expenses of $1.0 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 or make investments in businesses, products or technologies that we
believe will complement our current or future business. While we are currently
evaluating potential transactions and transaction prospects, we do not
currently have agreements or commitments with respect to any acquisition or
investment. 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 March 7, 2000)............................. $189.94 95.50
</TABLE>
On March 7, 2000, the reported last sale price on the Nasdaq National
Market for our common stock was $172.00. 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 $172.00 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 ................. 236 248
Additional paid-in capital................. 384,821 2,441,057
Accumulated deficit........................ (27,534) (27,534)
Notes receivable........................... (460) (460)
Deferred compensation...................... (49,852) (49,852)
Accumulated other comprehensive loss....... (31) (31)
--------------- -----------------
Total stockholders' equity............... 307,180 2,363,428
--------------- -----------------
Total capitalization................... $ 307,180 $ 2,363,428
=============== =================
</TABLE>
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<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 $172.00 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 $2.4 billion, or
$9.51 per share. This represents an immediate increase in the net tangible
book value to existing stockholders of $8.21 per share and an immediate
dilution to new investors of $162.49 per share. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share.......................... $172.00
Net tangible book value per share at January 29, 2000.......... $1.30
Increase in net tangible book value per share attributable to
new investors................................................. 8.21
-----
Net tangible book value per share after this offering............ 9.51
-------
Dilution per share to new investors.............................. $162.49
=======
</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 $10.17 and total
dilution per share to new investors would be $161.83.
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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<PAGE>
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. On March 8, we entered into a
lease of a facility in Chelmsford, Massachusetts consisting of approximately
114,000 square feet, which lease expires in 2007.
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.
38
<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.
For purposes of the following table, 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 Option
-------------------------------- ---------------------------------
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.
49
<PAGE>
(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.
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. Chikong Shue is
offering 650,000 shares and the Shue 1999 Trust is offering 217,000
shares.
(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 of common stock 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. If the underwriter's over-allotment option is exercised in
full, the total price to public would be $ , the total underwriters'
discounts and commissions would be $ , and the total proceeds to us would
be $ before deducting estimated offering expenses.
Sycamore, our directors and officers and 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 of our common stock or other
securities acquired in open market transactions after the date of this
prospectus, (3) 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,
(4) 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 (5) 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. Certain partners and employees of Skadden, Arps, Slate, Meagher
& Flom LLP beneficially own, in aggregate, approximately 3,120 shares of our
common stock.
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.................................. 100,000
Legal fees and expenses.......................................... 200,000
Accounting fees and expenses..................................... 150,000
Blue Sky fees and expenses (including legal fees)................ 5,000
Transfer agent and registrar fees and expenses................... 15,000
Miscellaneous.................................................... 10,614
----------
Total.......................................................... $1,025,000
==========
</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. dated March 5, 1999
***++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 dated February 9, 2000.
**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 executive officers of the Company
each dated November 17, 1999
***10.10 Form of Change in Control Agreement between the Company and
executive officers of the Company each dated November 17, 1999
***10.11 Promissory Note and Pledge Agreement dated October 20, 1999
between the Company and Kevin Oye, Vice President of Business
Development
****10.12 Promissory Note dated February 5, 1999 between the Company and
Eric Swanson
****10.13 Promissory Note dated June 16, 1999 between the Company and Eric
Swanson
10.14 Lease Agreement between the Company and New Boston Mill Road
Limited Partnership dated March 8, 2000
10.15 Assignment of Subleases between the Company and Thermedics
Detection, Inc. dated
March 8, 2000
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 of previous filing)
****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.
**** Previously filed.
+ 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 AmendmentNo. 2 to
the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Chelmsford, Massachusetts, on this 9th day of
March, 2000.
SYCAMORE NETWORKS, INC.
/s/ Daniel E. Smith
By: _________________________________
Daniel E. Smith
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the registration statement has been signed by the following persons
in the capacities indicated on this 9th day of March, 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
* Director
________________________________________
Timothy Barrows
* Director
________________________________________
Paul J. Ferri
* Director
________________________________________
</TABLE> John W. Gerdelman
/s/ Frances M. Jewels
*By: ______________________________
Frances M. Jewels
Chief Financial Officer, Vice
President, Finance and
Administration, Secretary and
Treasurer
<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. dated March 5, 1999
***++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 dated February 9, 2000.
**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 executive officers of the Company
each dated November 17, 1999
***10.10 Form of Change in Control Agreement between the Company and
executive officers of the Company each dated November 17, 1999
***10.11 Promissory Note and Pledge Agreement dated October 20, 1999
between the Company and Kevin Oye, Vice President of Business
Development
****10.12 Promissory Note dated February 5, 1999 between the Company and
Eric Swanson
****10.13 Promissory Note dated June 16, 1999 between the Company and Eric
Swanson
10.14 Lease Agreement between the Company and New Boston Mill Road
Limited Partnership dated March 8, 2000
10.15 Assignment of Subleases between the Company and Thermedics
Detection, Inc. dated
March 8, 2000
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 of previous filing)
****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.
**** Previously filed.
+ 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>
15,000,000 SHARES
SYCAMORE NETWORKS, INC.
COMMON STOCK, $.001 PAR VALUE
UNDERWRITING AGREEMENT
MARCH __, 2000
<PAGE>
March __, 2000
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
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
Sycamore Networks, Inc., a Delaware corporation (the "COMPANY"),
proposes to issue and sell to the several Underwriters named in Schedule I
hereto (the "UNDERWRITERS") 12,394,707 shares of its Common Stock, $.001 par
value per share (the "COMPANY FIRM SHARES"). Certain shareholders of the Company
(the "SELLING SHAREHOLDERS") named in Schedule I heretoseverally propose to sell
to the several Underwriters an aggregate of 2,605,293 shares of Common Stock,
$.001 par value per share, of the Company (the "SELLING SHAREHOLDER FIRM
SHARES," and collectively with the Company Firm Shares, the "FIRM SHARES"), each
Selling Shareholder selling the amount set forth opposite such Selling
Shareholder's name in Schedule I hereto.
The Company also proposes to issue and sell to the several Underwriters
not more than an additional 2,250,000 shares of its Common Stock, $.001 par
value per share (the "ADDITIONAL SHARES"), if and to the extent that you, as
Managers of the offering, shall have determined to exercise, on behalf of the
Underwriters, the right to purchase such shares of common stock granted to the
Underwriters in Section 2 hereof. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "Shares." The shares of Common
Stock, $.001 par value per share, of the Company to be outstanding after giving
effect to the sales contemplated hereby are hereinafter referred to as the
"COMMON STOCK." The Company and the Selling Shareholders are hereinafter
sometimes collectively referred to as the "SELLERS".
The Company has filed with the Securities and Exchange Commission (the
"COMMISSION") a registration statement, including a prospectus, relating to the
Shares. The registration statement as amended at the time it becomes effective,
including the
<PAGE>
information (if any) deemed to be part of the registration statement at the time
of effectiveness pursuant to Rule 430A under the Securities Act of 1933, as
amended (the "SECURITIES ACT"), is hereinafter referred to as the "REGISTRATION
STATEMENT"; the prospectus in the form first used to confirm sales of Shares is
hereinafter referred to as the "PROSPECTUS". If the Company has filed an
abbreviated registration statement to register additional shares of Common Stock
pursuant to Rule 462(b) under the Securities Act (the "RULE 462 REGISTRATION
STATEMENT"), then any reference herein to the term "REGISTRATION STATEMENT"
shall be deemed to include such Rule 462 Registration Statement.
1. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop
order suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for such purpose are pending before or, to
the Company's knowledge, threatened by the Commission.
(b) (i) The Registration Statement, when it became effective,
did not contain and, as amended or supplemented, if applicable, will
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; (ii) the Registration Statement and
the Prospectus comply and, as amended or supplemented, if applicable,
will comply in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder; and
(iii) the Prospectus does not contain and, as amended or supplemented,
if applicable, will not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, except that the representations and warranties set
forth in this paragraph do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein.
(c) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business
or its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated,
is
- 2 -
<PAGE>
validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business
or its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole; all of the issued shares of capital
stock of each subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and are owned
directly by the Company, free and clear of all liens, encumbrances,
equities or claims. None of the Company's subsidiaries is a
"significant subsidiary", as such term is defined in Rule 405 of the
rules and regulations of the Commission under the Securities Act;
(e) This Agreement has been duly authorized, executed and
delivered by the Company.
(f) The authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock (including the Shares to be
sold by the Selling Shareholders) outstanding prior to the issuance of
the Shares to be sold by the Company pursuant hereto have been duly
authorized and are validly issued, fully paid and non-assessable.
(h) The Shares to be sold by the Company pursuant hereto have
been duly authorized and, when issued and delivered in accordance with
the terms of this Agreement, will be validly issued, fully paid and
non-assessable, and the issuance of such Shares will not be subject to
any preemptive or similar rights.
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the certificate
of incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole, or any
judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Company or any subsidiary, and no consent,
approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition,
- 3 -
<PAGE>
financial or otherwise, or in the earnings, business or operations of
the Company and its subsidiaries, taken as a whole, from that set forth
in the Prospectus (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement).
(k) There are no legal or governmental proceedings pending or,
to the Company's knowledge, threatened to which the Company or any of
its subsidiaries is a party or to which any of the properties of the
Company or any of its subsidiaries is subject that are required to be
described in the Registration Statement or the Prospectus and are not
so described or any statutes, regulations, contracts or other documents
that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement
that are not described or filed as required.
(l) Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Securities Act,
complied when so filed in all material respects with the Securities Act
and the applicable rules and regulations of the Commission thereunder.
(m) The Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be, required to
register as an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended.
(n) The Company and its subsidiaries (1) are in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"); (2) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses, and (3) are
in compliance with all terms and conditions of any such permit, license
or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
(o) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval,
any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate,
have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
- 4 -
<PAGE>
(p) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus (i) the
Company and its subsidiaries have not incurred any material liability
or obligation, direct or contingent, nor entered into any material
transaction not in the ordinary course of business; (ii) the Company
has not purchased any of its outstanding capital stock, except for
repurchases in accordance with the provisions of the Company's 1998
Stock Incentive Plan, 1999 Stock Incentive Plan or the 1999
Non-Employee Director Option Plan, nor declared, paid or otherwise made
any dividend or distribution of any kind on its capital stock other
than ordinary and customary dividends; and (iii) there has not been any
material change in the capital stock, short-term debt or long-term debt
of the Company and its subsidiaries, except in each case as described
in the Prospectus.
(q) The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title
to all personal property owned by them which is material to the
business of the Company and its subsidiaries, in each case free and
clear of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not materially affect the
value of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by
the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not
material and do not materially interfere with the use made and proposed
to be made of such property and buildings by the Company and its
subsidiaries, in each case, except as described in the Prospectus.
(r) The Company and its subsidiaries own or possess, or can
acquire on reasonable terms, all material patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks and
trade names currently employed by them in connection with the business
now operated by them, and neither the Company nor any of its
subsidiaries has received any notice of infringement of or conflict
with asserted rights of others with respect to any of the foregoing
which, singly or in the aggregate, would be reasonably likely to have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
(s) No material labor dispute with the employees of the
Company or any of its subsidiaries exists, except as described in the
Prospectus, or, to the knowledge of the Company, is imminent; and the
Company is not aware of any existing, threatened or imminent labor
disturbance by the employees of any of its principal suppliers,
manufacturers or contractors that could have a material adverse effect
on the Company and its subsidiaries, taken as a whole.
- 5 -
<PAGE>
(t) The Company and its subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks
and in such amounts as, in the Company's reasonable judgment, are
prudent and customary in the businesses in which they are engaged;
neither the Company nor any of its subsidiaries has been refused any
insurance coverage sought or applied for; and neither the Company nor
any of its subsidiaries has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole, except as described in the Prospectus.
(u) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or
foreign regulatory authorities necessary to conduct their respective
businesses other than those which, if not so possessed, would not have
a material adverse effect on the Company and its subsidiaries, taken as
a whole, and neither the Company nor any of its subsidiaries has
received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a material adverse effect on the Company
and its subsidiaries, taken as a whole, except as described the
Prospectus.
(v) The Company and each of its subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only
in accordance with management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(w) The accountants who have certified or shall certify the
financial statements filed or to be filed with the Commission as part
of the Registration Statement and the Prospectus are independent
accountants as required by the Securities Act. The financial statements
of the Company (together with the related notes thereto) included in
the Registration Statement present fairly the financial position and
results of operations of the Company at the respective dates and for
the respective periods to which they apply, subject to normal year-end
adjustments. Such financial statements have been prepared in accordance
with generally accepted accounting principles consistently applied
throughout the periods involved except as otherwise stated therein.
- 6 -
<PAGE>
(x) The Shares have been approved for listing on the Nasdaq
National Market, subject to official notice of issuance.
(y) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the
Securities Act with respect to any securities of the Company or to
require the Company to include such securities with the Shares
registered pursuant to the Registration Statement, other than the
Second Amended and Restated Investor's Rights Agreement dated March 1,
1999 as amended by Amendments Nos. 1, 2, 3 and 4 thereto (the "Investor
Rights Agreement"), for which an appropriate waiver has been obtained.
(z) The Company has complied with all provisions of Section
517.075, Florida Statutes relating to doing business with the
Government of Cuba or with any person or affiliate located in Cuba.
(aa) The Company has reviewed its operations and that of its
subsidiaries to evaluate the extent to which the business or operations
of the Company or any of its subsidiaries will be affected by the Year
2000 Problem (that is, any significant risk that computer hardware or
software applications used by the Company and its subsidiaries will
not, in the case of dates or time periods occurring after December 31,
1999, function at least as effectively as in the case of dates or time
periods occurring prior to January 1, 2000); as a result of such
review, (1) the Company has no reason to believe, and does not believe,
that (A) there are any issues related to the Company's preparedness to
address the Year 2000 Problem that are of a character required to be
described or referred to in the Registration Statement or Prospectus
which have not been accurately described in the Registration Statement
or Prospectus and (B) the Year 2000 Problem will have a material
adverse effect on the condition, financial or otherwise, or on the
earnings, business or operations of the Company and its subsidiaries,
taken as a whole, or result in any material loss or interference with
the business or operations of the Company and its subsidiaries, taken
as a whole, and (2) the Company reasonably believes, after due inquiry,
that the suppliers, vendors, customers or other material third parties
used or served by the Company and such subsidiaries are addressing or
will address the Year 2000 Problem in a timely manner, except to the
extent that a failure to address the Year 2000 Problem by any supplier,
vendor, customer or material third party would not have a material
adverse effect on the condition, financial or otherwise, or on the
earnings, business or operations of the Company and its subsidiaries,
taken as a whole.
2. Representations and Warranties of the Selling Shareholders. Each of
the Selling Shareholders, severally and not jointly, represents and warrants to
and agrees with each of the Underwriters that:
- 7 -
<PAGE>
(a) This Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Shareholder.
(b) The execution and delivery by such Selling Shareholder of,
and the performance by such Selling Shareholder of its obligations
under, this Agreement, the Custody Agreement signed by such Selling
Shareholder and BankBoston, N.A., as Custodian, relating to the deposit
of the Shares to be sold by such Selling Shareholder and the Power of
Attorney appointing certain individuals as such Selling Shareholder's
attorneys-in-fact to the extent set forth therein, relating to the
transactions contemplated hereby and by the Registration Statement (the
"CUSTODY AGREEMENT AND POWER OF ATTORNEY"), will not contravene any
provision of applicable law, or the certificate of incorporation (or
similar charter) or by-laws of such Selling Shareholder (if such
Selling Shareholder is a corporation), or any agreement or other
instrument binding upon such Selling Shareholder or any judgment, order
or decree of any governmental body, agency or court having jurisdiction
over such Selling Shareholder, and no consent, approval, authorization
or order of, or qualification with, any governmental body or agency is
required for the performance by such Selling Shareholder of its
obligations under this Agreement or the Custody Agreement or Power of
Attorney of such Selling Shareholder, except such as may be required by
the securities or Blue Sky laws of the various states in connection
with the offer and sale of the Shares.
(c) Such Selling Shareholder has, and on the Closing Date will
have, valid title to the Shares to be sold by such Selling Shareholder
and the legal right and power, and all authorization and approval
required by law, to enter into this Agreement, the Custody Agreement
and the Power of Attorney and to sell, transfer and deliver the Shares
to be sold by such Selling Shareholder.
(d) The Custody Agreement and the Power of Attorney have been
duly authorized, executed and delivered by such Selling Shareholder and
are valid and binding agreements of such Selling Shareholder.
(e) Delivery of the Shares to be sold by such Selling
Shareholder pursuant to this Agreement will pass title to such Shares
free and clear of any security interests, claims, liens, equities and
other encumbrances.
(g) Such Selling Shareholder has reviewed and is familiar with
the Registration Statement and the Prospectus (or, if the Prospectus is
not in existence, the most recent preliminary prospectus) and: (i) the
Registration Statement, when it became effective, did not contain and,
as amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and (ii) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any
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<PAGE>
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that
the representations and warranties set forth in this paragraph 2(g)
apply only to statements or omissions in the Registration Statement or
the Prospectus based upon information relating to any such Selling
Stockholder furnished to the Company in writing by such Selling
Stockholder through you expressly for use therein.
3. Agreements to Sell and Purchase. The Company and each Selling
Shareholder hereby agree, severally and not jointly, to sell to the several
Underwriters the Firm Shares in the respective amounts set forth in Schedule I
hereto, and each Underwriter, upon the basis of the representations and
warranties herein contained, but subject to the conditions hereinafter stated,
agrees, severally and not jointly, to purchase from the Company and the Selling
Shareholders the respective numbers of Firm Shares set forth in Schedule II
hereto opposite its name at $____ a share (the "PURCHASE PRICE").
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to issue
and sell to the Underwriters the Additional Shares, and the Underwriters shall
have a one-time right to purchase, severally and not jointly, up to 2,250,000
Additional Shares at the Purchase Price. If you, on behalf of the Underwriters,
elect to exercise such option, you shall so notify the Company in writing not
later than 30 days after the date of this Agreement, which notice shall specify
the number of Additional Shares to be purchased by the Underwriters and the date
on which such shares are to be purchased. Such date may be the same as the
Closing Date (as defined below) but not earlier than the Closing Date, or if
after the Closing Date, unless otherwise agreed, such date shall not be earlier
than two (2) business days after the date of such notice, nor later than ten
business days after the date of such notice. Additional Shares may be purchased
as provided in Section 5 hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each Underwriter agrees, severally and
not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Additional Shares to be purchased as the
number of Firm Shares set forth in Schedule II hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.
The Company hereby agrees that, without the prior written consent of
Morgan Stanley on behalf of the Underwriters, it will not, during the period
ending 90 days after the date of the Prospectus (the "Lock-up Period"), (i)
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 or (ii) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (i) or (ii) above
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<PAGE>
is to be settled by delivery of Common Stock or such other securities, in cash
or otherwise. The foregoing sentence shall not apply to (A) the Shares to be
sold hereunder, (B) the issuance by the Company of shares of Common Stock upon
the exercise of an option or warrant or the conversion of a security outstanding
on the date hereof that is disclosed in the Prospectus or of which the
Underwriters have been advised in writing, (C) the issuance by the Company of
shares of Common Stock or options therefor issued pursuant to stock plans
described in the Prospectus, (D) the issuance by the Company of shares of Common
Stock or options or warrants for shares of Common Stock to suppliers,
developers, consultants or other persons in connection with supply, development,
consulting, marketing or similar arrangements, provided that the recipient of
such shares, options or warrants executes and delivers to you on or before the
date of such issuance a "lock-up" agreement substantially in the form provided
to the Company by the Underwriters; or (E) the issuance by the Company of shares
of Common Stock in connection with the acquisition by the Company of any
businesses, products or technologies. The Company agrees that, without the prior
written consent of Morgan Stanley, it will not, during the period ending 90 days
after the date of the Prospectus, file or cause to become effective any
registration statement relating to any securities of the Company, including a
registration statement registering shares under any of the Company's stock plans
or other employee benefit plans; provided that the foregoing prohibition shall
--------
not apply to any registration statement relating to shares of Common Stock of
the Company to be issued in connection with any acquisition by the Company of
any businesses, products or technologies or any registration statement filed in
response to the exercise of demand registration rights under the Investor Rights
Agreement.
Each Selling Shareholder hereby agrees to execute and deliver on or
before the Closing Date a "lock-up" agreement substantially in the form of
Exhibit A hereto.
4. Terms of Public Offering. The Sellers are advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Sellers are further
advised by you that the Shares are to be offered to the public initially at
$____ a share (the "PUBLIC OFFERING PRICE") and to certain dealers selected by
you at a price that represents a concession not in excess of $____ a share under
the Public Offering Price, and that any Underwriter may allow, and such dealers
may reallow, a concession, not in excess of $___ a share, to any Underwriter or
to certain other dealers.
5. Payment and Delivery. Payment for the Firm Shares shall be made to
the Sellers in Federal or other funds immediately available in New York City
against delivery of such Firm Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on ______ __, 2000, or at such
other time on the same or such other date, not later than ______ __, 2000, as
shall be designated in writing by you. The time and date of such payment are
hereinafter referred to as the "CLOSING DATE".
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<PAGE>
Payment for any Additional Shares shall be made to the Company in
Federal or other funds immediately available in New York City against delivery
of such Additional Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on the date specified in the
notice described in Section 3 or at such other time on the same or on such other
date, in any event not later than ______ __, 2000, as shall be designated in
writing by you. The time and date of such payment are hereinafter referred to as
the "OPTION CLOSING DATE".
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
6. Conditions to the Underwriters' Obligations. The obligations of the
Sellers to sell the Shares to the Underwriters and the several obligations of
the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than 12:00 p.m. (New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date there shall not have occurred any change,
or any development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or operations of
the Company and its subsidiaries, taken as a whole, from that set forth
in the Prospectus (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement) that, in your judgment, is
material and adverse and that makes it, in your judgment, impracticable
to market the Shares on the terms and in the manner contemplated in the
Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer
of the Company, to the effect set forth in Section 6(a)(i) above and to
the effect that the representations and warranties of the Company
contained in this Agreement are true and correct as of the Closing Date
and that the Company has complied with all of the agreements and
satisfied all of the conditions on its part to be performed or
satisfied hereunder on or before the Closing Date.
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<PAGE>
The officer signing and delivering such certificate may rely upon the
best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date
an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, outside counsel
for the Company, dated the Closing Date, substantially in the form of
Exhibit B hereto.
(d) The Underwriters shall have received on the Closing Date
an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for
each of the Selling Shareholders, dated the Closing Date, substantially
in the form of Exhibit C hereto.
(e) The Underwriters shall have received on the Closing Date
an opinion of Testa, Hurwitz & Thibeault, LLP, counsel for the
Underwriters, dated the Closing Date, covering the matters referred to
in Sections 6(c)(iv), 6(c)(v), 6(c)(vii) (but only as to the statements
in the Prospectus under "Description of Capital Stock" and
"Underwriters") and 6(c)(x) above.
With respect to Section 6(c)(x) above, Skadden, Arps, Slate,
Meagher & Flom LLP and Testa, Hurwitz & Thibeault, LLP may state that
their opinion and belief are based upon their participation in the
preparation of the Registration Statement and Prospectus and any
amendments or supplements thereto and review and discussion of the
contents thereof, but are without independent check or verification,
except as specified. With respect to Section 6(d) above, Skadden, Arps,
Slate, Meagher & Flom LLP may rely upon an opinion or opinions of
counsel for any Selling Shareholders and, with respect to factual
matters and to the extent such counsel deems appropriate, upon the
representations of each Selling Shareholder contained herein and in the
Custody Agreement and Power of Attorney of such Selling Shareholder and
in other documents and instruments; provided that (i) each such counsel
for the Selling Shareholders is satisfactory to your counsel, (ii) a
copy of each opinion so relied upon is delivered to you and is in form
and substance satisfactory to your counsel, (iii) copies of such
Custody Agreements and Powers of Attorney and of any such other
documents and instruments shall be delivered to you and shall be in
form and substance satisfactory to your counsel and (iv) Skadden, Arps,
Slate, Meagher & Flom LLP shall state in their opinion that they are
justified in relying on each such other opinion.
The opinions of Skadden, Arps, Slate, Meagher & Flom LLP and
such other counsel described in Section 6(c) and 6(d) (and any opinions
of counsel for any Selling Shareholder referred to in the immediately
preceding paragraph) above shall be rendered to the Underwriters at the
request of the Company or one more of the Selling Shareholders, as the
case may be, and shall so state therein.
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<PAGE>
(f) The Underwriters shall have received, on each of the date
hereof and the Closing Date, a letter dated the date hereof or the
Closing Date, as the case may be, in form and substance satisfactory to
the Underwriters, from PriceWaterhouseCoopers L.L.P., independent
public accountants, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus;
provided that the letter delivered on the Closing Date shall use a
"cut-off date" not earlier than the date hereof.
(g) The "lock-up" agreements, each substantially in the form
provided to the Company by the Underwriters, between you and Selling
Shareholders, officers and directors of the Company relating to sales
and certain other dispositions of shares of Common Stock or certain
other securities, delivered to you on or before the date hereof, shall
be in full force and effect on the Closing Date.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the delivery to you on the Option Closing Date
of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of the Additional
Shares and other matters related to the issuance of the Additional Shares.
7. Covenants of the Company. In further consideration of the agreements
of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, six signed copies of
the Registration Statement (including exhibits thereto) and for
delivery to each other Underwriter a conformed copy of the Registration
Statement (without exhibits thereto) and to furnish to you in New York
City, without charge, prior to 10:00 a.m. New York City time on the
business day next succeeding the date of this Agreement and during the
period mentioned in Section 7(c) below, as many copies of the
Prospectus and any supplements and amendments thereto or to the
Registration Statement as you may reasonably request.
(b) Before amending or supplementing the Registration
Statement or the Prospectus, to furnish to you a copy of each such
proposed amendment or supplement and not to file any such proposed
amendment or supplement to which you reasonably object, and to file
with the Commission within the applicable period specified in Rule
424(b) under the Securities Act any prospectus required to be filed
pursuant to such Rule.
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<PAGE>
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the
Underwriters the Prospectus is required by law to be delivered in
connection with sales by an Underwriter or dealer, any event shall
occur or condition exist as a result of which it is necessary to amend
or supplement the Prospectus in order to make the statements therein,
in the light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if, in the opinion of counsel for the
Underwriters, it is necessary to amend or supplement the Prospectus to
comply with applicable law, forthwith to prepare, file with the
Commission and furnish, at its own expense, to the Underwriters and to
the dealers (whose names and addresses you will furnish to the Company)
to which Shares may have been sold by you on behalf of the Underwriters
and to any other dealers upon request, either amendments or supplements
to the Prospectus so that the statements in the Prospectus as so
amended or supplemented will not, in the light of the circumstances
when the Prospectus is delivered to a purchaser, be misleading or so
that the Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as you shall
reasonably request.
(e) To make generally available to the Company's security
holders and to you as soon as practicable an earnings statement
covering the twelve-month period ending April 30, 2001 that satisfies
the provisions of Section 11(a) of the Securities Act and the rules and
regulations of the Commission thereunder.
8. Expenses. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Company agrees to
pay or cause to be paid all expenses incident to the performance of the Sellers'
obligations under this Agreement, including: (a) (1) the fees, disbursements and
expenses of the Company's counsel and the Company's accountants in connection
with the registration and delivery of the Shares under the Securities Act and
all other fees or expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing costs
associated therewith, and the mailing and delivering of copies thereof to the
Underwriters and dealers, in the quantities hereinabove specified; (2) all costs
and expenses related to the transfer and delivery of the Shares to the
Underwriters, including any transfer or other taxes payable thereon; (3) the
cost of printing or producing any Blue Sky or Legal Investment memorandum in
connection with the offer and sale of the Shares under state securities laws and
all expenses in connection with the qualification of the Shares for offer and
sale under state securities laws as provided in Section 6(d) hereof, including
filing fees and the reasonable fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky or Legal Investment memorandum; (4) all filing fees and the reasonable
fees and disbursements of counsel to the Underwriters incurred in connection
with the review and qualification of the offering of the Shares by the National
Association of Securities
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<PAGE>
Dealers, Inc.; (5) all costs and expenses incident to listing the Shares on the
Nasdaq National Market; (6) the cost of printing certificates representing the
Shares; (7) the costs and charges of any transfer agent, registrar or
depositary; (8) the costs and expenses of the Company relating to investor
presentations on any "road show" undertaken in connection with the marketing of
the offering of the Shares, including, without limitation, expenses associated
with the production of road show slides and graphics, fees and expenses of any
consultants engaged in connection with the road show presentations with the
prior approval of the Company, travel and lodging expenses of the
representatives and officers of the Company and any such consultants, and the
cost of any aircraft chartered in connection with the road show; and (9) all
other costs and expenses incident to the performance of the obligations of the
Sellers hereunder for which provision is not otherwise made in this Section; and
(b) all costs and expenses incident to the performance of the Selling
Shareholders' obligations under this Agreement which are not otherwise
specifically provided for in this Section 8, including (i) any fees and expenses
of counsel for the Selling Shareholders, (ii) the fees and expenses of the
Attorneys-in-Fact and the Custodian; and (iii) all costs and expenses related to
the transfer, sale and delivery of the Shares to be sold by the Selling
Shareholders to the Underwriters. It is understood, however, that except as
provided in this Section, Section 9 entitled "Indemnity and Contribution", and
the last paragraph of Section 12 below, the Underwriters will pay all of their
costs and expenses, including fees and disbursements of their counsel, stock
transfer taxes payable on resale of any of the Shares by them and any
advertising expenses connected with any offers they may make. The provisions of
this Section shall not supersede or otherwise affect any agreement that the
Sellers may otherwise have for the allocation of such expenses among themselves.
9. Indemnity and Contribution. (a) The Company, agrees to indemnify and
hold harmless each Underwriter, each Selling Shareholder and each person, if
any, who controls any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission or alleged untrue statement or omission based
upon information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein provided, however,
that the foregoing indemnity agreement with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any such losses, claims, damages or liabilities purchased
Shares, or any person controlling such Underwriter, if a copy of the Prospectus
(as then amended or supplemented if the Company shall have furnished any
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<PAGE>
amendments or supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been delivered, at or
prior to the written confirmation of the sale of the Shares to such person, and
if the Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such losses, claims, damages or liabilities, unless such failure
is the result of noncompliance by the Company with Section 7(a) hereof.
(b) Each Selling Shareholder agrees, severally and not jointly, to
indemnify and hold harmless each Underwriter, the Company, its directors, its
officers who sign the Registration Statement and each person, if any, who
controls any Underwriter or the Company within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act, from and against any
and all losses, claims, damages and liabilities (including, without limitation,
any legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the Prospectus
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only with reference to information
relating to such Selling Shareholder furnished in writing by or on behalf of
such Selling Shareholder expressly for use in the Registration Statement, any
preliminary prospectus, the Prospectus or any amendments or supplements thereto.
Notwithstanding anything contained herein to the contrary, the aggregate
liability of any Selling Shareholder under this Section 9(b) shall be limited to
the aggregate net proceeds actually received from the sale of Shares by such
Selling Shareholder hereunder; provided, however, that in no event shall the
liability of any Selling Shareholder exceed the proportion of the aggregate
amount of losses, liabilities, claims, damages or expenses which, up to an
including such time, have been or are being claimed by the Underwriters and each
person, if any, who controls any Underwriter, against the Selling Shareholders
and the Company, or any of them, equal to the proportion that the number of
Shares sold hereunder by such Selling Shareholder bears to the aggregate number
of Shares sold hereunder.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Selling Shareholders, the Company, its directors, its
officers who sign the Registration Statement and each person, if any, who
controls the Company or any Selling Shareholder within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act to the same
extent as the foregoing indemnities from the Company and each Selling
Shareholder to such Underwriter, but only with reference to information relating
to such Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use in the Registration Statement, any preliminary
prospectus, the Prospectus or any amendments or supplements thereto.
(d) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant
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<PAGE>
to Section 9(a), 9(b) or 9(c), such person (the "INDEMNIFIED PARTY") shall
promptly notify the person against whom such indemnity may be sought (the
"INDEMNIFYING PARTY") in writing and the indemnifying party, upon request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (1) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Underwriters and all persons, if any, who
control any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, (2) the fees and expenses of
more than one separate firm (in addition to any local counsel) for the Company,
its directors, its officers who sign the Registration Statement and each person,
if any, who controls the Company within the meaning of either such Section and
(3) the fees and expenses of more than one separate firm (in addition to any
local counsel) for all Selling Shareholders and all persons, if any, who control
any Selling Shareholder within the meaning of either such Section, and that all
such fees and expenses shall be reimbursed as they are incurred. In the case of
any such separate firm for the Underwriters and such control persons of the
Underwriters, such firm shall be designated in writing by Morgan Stanley, in the
case of any such separate firm for the Company, and such directors, officers and
control persons of the Company, such firm shall be designated in writing by the
Company and in the case of any such separate firm for the Selling Shareholders
and such control persons of any Selling Shareholders, such firm shall be
designated in writing by the persons named as attorneys-in-fact for the Selling
Shareholders under the Powers of Attorney. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened proceeding
in respect of which any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified party, unless
such settlement includes an unconditional release of such indemnified party from
all liability on claims that are the subject matter of such proceeding.
(e) To the extent the indemnification provided for in Section 9(a),
9(b) or 9(c) is unavailable to an indemnified party or insufficient in respect
of any losses, claims, damages or liabilities referred to therein, then each
indemnifying party under such
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<PAGE>
paragraph, in lieu of indemnifying such indemnified party thereunder, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the indemnifying party
or parties on the one hand and the indemnified party or parties on the other
hand from the offering of the Shares or (ii) if the allocation provided by
clause 9(d)(i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
9(d)(i) above but also the relative fault of the indemnifying party or parties
on the one hand and of the indemnified party or parties on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by each Seller on the one hand
and the Underwriters on the other hand in connection with the offering of the
Shares shall be deemed to be in the same respective proportions as the net
proceeds from the offering of the Shares (before deducting expenses) received by
the Sellers and the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover of the
Prospectus, bear to the aggregate Public Offering Price of the Shares. The
relative fault of the Sellers on the one hand and the Underwriters on the other
hand shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or by the Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Underwriters' respective obligations to contribute pursuant to this Section
9 are several in proportion to the respective number of Shares they have
purchased hereunder, and not joint.
(f) The Company and the Underwriters agree that it would not be just or
equitable if contribution pursuant to this Section 9 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in Section 9(e). The amount paid or payable
by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 9, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 9 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.
- 18 -
<PAGE>
(g) The indemnity and contribution provisions contained in this Section
9 and the representations, warranties and other statements of the Company and
the Selling Shareholders contained in this Agreement shall remain operative and
in full force and effect regardless of (i) any termination of this Agreement,
(ii) any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, any Selling Shareholder or any person controlling
any Selling Shareholder, or the Company, its officers or directors or any person
controlling the Company and (iii) acceptance of and payment for any of the
Shares.
10. Termination. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 10(a)(i) through 10(a)(iv), such event, singly
or together with any other such event, makes it, in your judgment, impracticable
to market the Shares on the terms and in the manner contemplated in the
Prospectus.
11. Effectiveness; Defaulting Underwriters. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase Shares that
it has or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set forth
opposite their respective names in Schedule II bears to the aggregate number of
Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as you may specify, to purchase the
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase on such date; provided that in no event shall the number of
Shares that any Underwriter has agreed to purchase pursuant to this Agreement be
increased pursuant to this Section 11 by an amount in excess of one-ninth of
such number of Shares without the written consent of such Underwriter. If, on
the Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased, and arrangements
- 19 -
<PAGE>
satisfactory to you, the Company and the Selling Shareholders for the purchase
of such Firm Shares are not made within 36 hours after such default, this
Agreement shall terminate without liability on the part of any non-defaulting
Underwriter, the Company or the Selling Shareholders. In any such case either
you or the relevant Sellers shall have the right to postpone the Closing Date,
but in no event for longer than seven days, in order that the required changes,
if any, in the Registration Statement and in the Prospectus or in any other
documents or arrangements may be effected. If, on the Option Closing Date, any
Underwriter or Underwriters shall fail or refuse to purchase Additional Shares
and the aggregate number of Additional Shares with respect to which such default
occurs is more than one-tenth of the aggregate number of Additional Shares to be
purchased, the non-defaulting Underwriters shall have the option to (i)
terminate their obligation hereunder to purchase Additional Shares or (ii)
purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of any Seller to comply with
the terms or to fulfill any of the conditions of this Agreement, or if for any
reason the Sellers shall be unable to perform its obligations under this
Agreement, the Sellers will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
12. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
13. Applicable Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York.
14. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
- 20 -
<PAGE>
Very truly yours,
SYCAMORE NETWORKS, INC.
By:
-----------------------------------------
Name:
Title: President and Chief Executive Officer
The Selling Shareholders named in Schedule I
hereto, acting severally
By:
-----------------------------------------
Name:
Title: President and Chief Executive Officer
Accepted as of the date hereof
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
Acting severally on behalf
of themselves and the
several Underwriters named
in Schedule II hereto.
By: Morgan Stanley & Co. Incorporated
By:
-------------------------------
Name:
Title: Principal
- 21 -
<PAGE>
SCHEDULE I
NUMBER OF FIRM
NAME SHARES TO BE SOLD
- ---- -----------------
Company: 12,394,707
- -------
Selling Shareholders:
- --------------------
Gururaj Deshpande......................................... 240,000
Daniel E. Smith .......................................... 240,000
Chikong Shue.............................................. 650,000
Ryker Young............................................... 297,543
Jeffry A. Kiel............................................ 126,000
Richard A. Barry ......................................... 553,500
Eric A. Swanson .......................................... 281,250
The Gururaj Deshpande Grantor
Retained Annuity Trust........................... 120,000
The Shue 1999 Trust ...................................... 217,000
TOTAL:........................................... 15,000,000
<PAGE>
SCHEDULE II
NAME NUMBER OF SHARES
- ---- ----------------
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:...............................................
<PAGE>
EXHIBIT A
________________, 2000
Morgan Stanley & Co. Incorporated
Credit Suisse First Boston
Lehman Brothers Inc.
J.P. Morgan Securities Inc.
Dain Rauscher Wessels Incorporated
FleetBoston Robertson Stephens Inc.
Thomas Weisel Partners LLC
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated
("MORGAN STANLEY") proposes to enter into an Underwriting Agreement (the
"UNDERWRITING AGREEMENT") with Sycamore Networks, Inc., a Delaware corporation
(the "COMPANY"), and certain persons and entities (the "Selling Stockholders")
providing for the public offering (the "PUBLIC OFFERING") by the several
Underwriters, including Morgan Stanley (the "UNDERWRITERS"), of shares (the
"SHARES") of Common Stock, par value $.001 per share, of the Company (the
"COMMON STOCK") by the Company and the Selling Stockholders.
To induce the Underwriters that may participate in the Public Offering
to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period commencing
on the date of the execution of the Underwriting Agreement and ending 90 days
after the date of the final prospectus relating to the Public Offering (the
"PROSPECTUS"), (1) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or (2) enter into any swap
or other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of Common Stock, whether any such transaction
described in clause (1) or (2) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise. The foregoing sentence
shall not apply to (a) the sale of any Shares to the Underwriters pursuant to
the Underwriting Agreement, (b) transactions relating to shares of Common Stock
or other securities acquired in open market transactions after the completion of
the Public Offering
<PAGE>
or (c) the sale or transfer of Shares in connection with the sale of the Company
pursuant to a merger, sale of stock or otherwise. In addition, the undersigned
agrees that, without the prior written consent of Morgan Stanley on behalf of
the Underwriters, it will not, during the period commencing on the date hereof
and ending 90 days after the date of the Prospectus, make any demand for or
exercise any right with respect to, the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for Common
Stock.
Notwithstanding the foregoing, (a) transfers of shares of Common Stock
or any security convertible into Common Stock as a gift or gifts, (b)
distributions of shares of Common Stock or any security convertible into Common
Stock to limited partners or stockholders of the undersigned, (c) transfers by
will or intestacy, and (d) transfers to (i) the undersigned's immediate family
or (ii) a trust, the beneficiaries of which are the undersigned and/or members
of the undersigned's immediate family, shall not be prohibited by this
agreement; provided that in the case of any such transfer or distribution
pursuant to clause (a), (b), (c) or (d), (i) each donee or distributee shall
execute and deliver to Morgan Stanley a duplicate form of this Lock-up Letter
and (ii) no filing by any party (donor, donee, transferor or transferee) under
Section 16(a) of the Securities Exchange Act of 1934, as amended, shall be
required or shall be made voluntarily in connection with such transfer or
distribution (other than a filing on a Form 5 made after the expiration of the
90-day period referred to above). "Immediate family" shall mean spouse, lineal
descendants, father, mother, brother or sister or first cousin of the transferor
and the father, mother, brother or sister or first cousin of the transferor's
spouse.
Whether or not the Public Offering actually occurs depends on a number
of factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.
This agreement shall automatically terminate on the date that the
Underwriting Agreement is terminated, in the event that the Underwriters do not
purchase Common Stock and the Underwriting Agreement is terminated pursuant to
its terms.
Very truly yours,
-----------------------
(Name)
-----------------------
(Address)
<PAGE>
EXHIBIT B
Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
March [ ], 2000
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
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Re: Sycamore Networks, Inc.
Public Offering of Common
Stock, par value $.001 per share
--------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Sycamore Networks, Inc., a Delaware
corporation (the "Company") in connection with the Underwriting Agreement, dated
March [ ], 2000 (the "Underwriting Agreement"), between the Company, certain
stockholders of the Company named therein (the "Selling Stockholders"), 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 as the several Underwriters named
therein (the "Underwriters"), relating to the sale to the several Underwriters
by the Company of 12,394,707 shares (the "Primary Shares") of the Company's
common stock, par value $.001 per share ("Common Stock") and by the Selling
Stockholders of 2,605,293 shares of Common Stock (the "Secondary Shares" and,
together with the Primary Shares, the "Shares").
This opinion is being furnished pursuant to Section 6(c) of the
Underwriting Agreement.
<PAGE>
MORGAN STANLEY & CO. INCORPORATED
March [ ], 2000
Page 2
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement on Form S-1 (File No. 333-30630) relating to the Shares, filed with
the Securities and Exchange Commission (the "Commission") on February 28, 2000
under the Securities Act of 1933, as amended (the "Act"), [Amendment No. 1
thereto filed with the Commission on February 28, 2000, and Amendment No. 2
thereto filed with the Commission on _____ 2000, including information deemed to
be a part of the registration statement at the time of effectiveness pursuant to
Rule 430A of the General Rules and Regulations under the Act (the "Rules and
Regulations") (such Registration Statement, as so amended, being hereinafter
referred to as the "Registration Statement"); (ii) the final prospectus, dated
_____ 2000, relating to the Shares in the form filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations (the "Prospectus"); (iii) a
specimen certificate representing the Common Stock; (iv) an executed copy of the
Underwriting Agreement; (v) the Certificate of Incorporation of the Company, as
currently in effect (the "Certificate of Incorporation"); (vi) the By-laws of
the Company, as currently in effect (the "By-laws"); (vii) certain resolutions
of the Board of Directors of the Company and a Pricing Committee of the Board of
Directors of the Company relating to the issuance and sale of the Primary Shares
and related matters; (viii) certain resolutions of the Board of Directors of the
Company relating to the original issuance of the Secondary Shares and certain
stock and other records of the Company relating thereto; (ix) the Second Amended
and Restated Investor Rights Agreement, dated as of February 26, 1999, among the
Company and the stockholders named therein (the "Investor Rights Agreement"), as
amended by Amendments Nos. 1, 2, 3 and 4 thereto, and those other agreements and
instruments listed on Schedule I hereto which are all the agreements binding on
the Company that have been filed as exhibits to the Registration Statement
(together with the Investor Rights Agreement, the "Applicable Contracts"); (x)
the Nasdaq National Market Notification Form for Listing of Additional Shares,
and correspondence
<PAGE>
MORGAN STANLEY & CO. INCORPORATED
March [ ], 2000
Page 3
relating thereto; and (xi) an officer's certificate, dated the date hereof, a
copy of which is attached as Exhibit A hereto. We have also examined originals
or copies, certified or otherwise identified to our satisfaction, of such
records of the Company and such agreements, certificates of public officials,
certificates of officers or other representatives of the Company and others, and
such other documents, certificates and records as we have deemed necessary or
appropriate as a basis for the opinions set forth herein.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of executed documents, we have assumed that the parties thereto,
other than the Company, had the power, corporate or other, to enter into and
perform all obligations thereunder and have also assumed the due authorization
by all requisite action, corporate or other, and execution and delivery by such
parties of such documents and the validity and binding effect thereof on such
parties. As to any facts material to the opinions expressed herein which we did
not independently establish or verify, we have relied upon oral or written
statements and representations of officers and other representatives of the
Company and others. In rendering the opinion set forth in paragraphs 6 and 7
below, we have also assumed, with your consent, that the certificates
representing the Primary Shares will be, and the certificates representing the
Secondary Shares have been, manually signed by one of the authorized officers of
the Transfer Agent and Registrar for the Common Stock and registered by such
Transfer Agent and Registrar and will conform, in the case of the Primary
Shares, or conform, in the case of the Secondary Shares, to the specimen thereof
examined by us.
As used herein, (i) the term "Applicable Laws" means those laws of the
Commonwealth of Massachusetts,
<PAGE>
MORGAN STANLEY & CO. INCORPORATED
March [ ], 2000
Page 4
the State of Delaware and the United States of America that, in each case, in
our experience, are normally applicable to transactions of the type contemplated
by the Underwriting Agreement (except for United States, state and foreign
securities or Blue Sky laws, anti-fraud laws and the rules and regulations of
the National Association of Securities Dealers, Inc.) but without our having
made any special investigation regarding any other laws; (ii) the term
"Governmental Authorities" means any federal, Massachusetts or Delaware
executive, legislative, judicial, administrative or regulatory body; (iii) the
term "Applicable Orders" means those judgments, orders or decrees of any
Governmental Authorities specifically identified to us by the Company to be
applicable to the Company, as identified on Schedule II hereto; and (iv) the
term "Governmental Approval" means any consent, approval, license, authorization
or validation of, or filing, qualification or registration with, any
Governmental Authority required to be made or obtained by the Company pursuant
to Applicable Laws, other than any consent, approval, license, authorization,
validation, filing, qualification or registration which may have become
applicable as a result of your or any Selling Stockholder's involvement in the
transactions contemplated by the Underwriting Agreement or because of your or
any Selling Stockholder's legal or regulatory status or because of any other
facts specifically pertaining to you or any Selling Stockholder.
Our opinion set forth in paragraph 1 below as to the existence and good
standing of the Company under the laws of the State of Delaware is based solely
on our review of a certificate to such effect from the Secretary of State of the
State of Delaware. Our opinion set forth in paragraph 2 below as to the
Company's qualification to do business and good standing as a foreign
corporation under the laws of the Commonwealths of Massachusetts and Virginia
and the States of Oklahoma, Illinois and Georgia is based solely on our review
of certificates from the Secretaries of State of the states noted.
<PAGE>
MORGAN STANLEY & CO. INCORPORATED
March [ ], 2000
Page 5
In connection with our opinion set forth in paragraph 7 below, insofar
as it relates to receipt by the Company of full payment upon the original
issuance of the Secondary Shares, we have relied solely on the representations
contained in the officer's certificate attached as Exhibit A hereto.
In connection with our opinion set forth in paragraph 13 below, we have
relied solely on the representations contained in the officer's certificate
attached as Exhibit A hereto and have not conducted a search of any computer or
electronic databases, or of the dockets of any court or administrative or
regulatory agency.
Members of our firm are admitted to the bar in the States of Delaware
and New York and the Commonwealth of Massachusetts, and we do not express any
opinion as to the laws of any other jurisdiction other than the laws of the
United States of America to the extent referred to specifically herein.
Based upon and subject to the limitations, qualifications, exceptions
and assumptions set forth herein, we are of the opinion that:
1. The Company is duly incorporated, validly existing and in
good standing as a corporation under the laws of the State of Delaware.
2. The Company is qualified to do business and in good
standing as a foreign corporation under the laws of the Commonwealths
of Massachusetts and Virginia and the States of Oklahoma, Illinois and
Georgia.
3. The Company has the corporate power and corporate authority
to own, lease and operate its properties and to conduct its business
as described in the Registration Statement.
<PAGE>
MORGAN STANLEY & CO. INCORPORATED
March [ ], 2000
Page 6
4. The authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus.
5. The Shares have been duly authorized for quotation on the
Nasdaq National Market.
6. The Primary Shares have been duly authorized by the
Company and, when delivered to and paid for by the Underwriters in
accordance with the terms of the Underwriting Agreement, will be
validly issued, fully paid and non-assessable shares of Common Stock.
The issuance of the Primary Shares will not be subject to any
preemptive or similar rights arising under the Certificate of
Incorporation or the By-laws or the General Corporation Law of the
State of Delaware or under any Applicable Contract, in each case as
currently in effect.
7. The original issuance and sale of the Secondary Shares was
duly authorized by the Company, and the Secondary Shares are validly
issued, fully paid and nonassessable shares of Common Stock. The
original issuance and sale of the Secondary Shares was not in violation
of any preemptive or similar rights arising under the Certificate of
Incorporation or the By-laws or the General Corporation Law of the
State of Delaware or under any Applicable Contract, in each case as
currently in effect.
8. The Underwriting Agreement has been duly authorized,
executed and delivered by the Company.
9. The execution and delivery of the Underwriting Agreement by
the Company and the consummation by the Company of the transactions
contemplated thereby will not contravene (i) the Certificate of
Incorporation or the By-laws; (ii) any Applicable Law; (iii) except to
the extent disclosed in the Prospectus, any Applicable Contract; (iv)
any Applicable Order; or (v) the Act, the Rules and Regulations, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
the rules and regulations thereunder, provided, however,
<PAGE>
MORGAN STANLEY & CO. INCORPORATED
March [ ], 2000
Page 7
that we do not express any opinion in this paragraph 8 with regard to
the anti-fraud provisions of the Act, the Rules and Regulations, the
Exchange Act or the rules and regulations thereunder or the information
contained in, the accuracy, completeness or correctness of, or the
adequacy of the disclosure contained in, the Prospectus or the
Registration Statement or the responsiveness thereof to the
requirements of the Act and the Rules and Regulations, which matters
are addressed in paragraph 10 below and the second paragraph following
paragraph 15 below.
10. No Governmental Approval, or consent, filing, registration
or approval of or with the Commission, is required to be made or
obtained by the Company for the execution and delivery by the Company
of the Underwriting Agreement or the issuance and sale of the Primary
Shares by the Company pursuant to the Underwriting Agreement, except
such as have been obtained or made, as set forth herein.
11. The statements set forth in the Prospectus under the
captions "Management-Benefit Plans", "Description of Capital Stock",
"Shares Eligible For Future Sale -- Rule 144", "Shares Eligible for
Future Sale -- Rule 701" and in Item 14 of the Registration Statement,
insofar as such statements constitute summaries of legal matters or
certain provisions of the documents referred to therein, fairly
summarize the matters referred to therein in all material respects.
12. The Registration Statement, at the time it became
effective, and the Prospectus, as of its date, appeared on their face
to be appropriately responsive in all material respects to the
requirements of the Act and the Rules and Regulations, except that, in
each case, we do not express any opinion as to the financial
statements, schedules and other financial and statistical data included
therein or excluded therefrom or the exhibits thereto, and, except to
the extent expressly stated in paragraph 10 above, we do not assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or either
Prospectus.
<PAGE>
MORGAN STANLEY & CO. INCORPORATED
March [ ], 2000
Page 8
13. To our knowledge, there are no legal or governmental
proceedings pending or threatened to which the Company is a party or to
which any of the properties of the Company is subject that are required
to be described in the Registration Statement or the Prospectus and
are not so described or statutes, regulations, contracts or other
documents that are required by the Securities Act or rules and
regulations thereunder to be described in the Registration Statement or
the Prospectus or to be filed as exhibits to the Registration Statement
that are not described or filed as required.
14. The Company is not and, upon the consummation of the
transactions contemplated by the Underwriting Agreement, will not be,
an investment company under the Investment Company Act of 1940, as
amended.
15. No shares of Common Stock are required pursuant to any
Applicable Contract to be registered under the Registration Statement,
except such rights that have either been satisfied or validly waived.
We have been orally advised by the Commission that the Registration
Statement was declared effective under the Act at [ ] on _____ 2000. We have
been orally advised by the Commission that no stop order suspending the
effectiveness of the Registration Statement has been issued and, to the best of
our knowledge, no proceedings for that purpose have been instituted or are
pending or threatened by the Commission.
In addition, we have participated in conferences with officers and
other representatives of the Company, certain Selling Stockholders, counsel for
the Selling Stockholders, representatives of the independent accountants of the
Company, your counsel and you at which the contents of the Registration
Statement and the Prospectus and related matters were discussed and, although we
are not passing upon, and do not assume any
<PAGE>
MORGAN STANLEY & CO. INCORPORATED
March [ ], 2000
Page 8
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus and have made no
independent check or verification thereof (except to the extent expressly stated
in paragraph 11 above), on the basis of the foregoing, no facts have come to our
attention that have led us to believe that the Registration Statement, at the
time it became effective, contained an untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus, as of its
date and as of the date hereof, contained or contains an untrue statement of a
material fact or omitted or omits to state a material fact necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading, except that we do not express any opinion or belief
with respect to the financial statements, schedules and other financial and
statistical data included therein or excluded therefrom or the exhibits to the
Registration Statement.
This opinion is furnished to you solely for your benefit in connection
with the closing under the Underwriting Agreement occurring today and is not to
be used, circulated, quoted or otherwise referred to for any other purpose or
relied upon by any other person without our express written permission.
Very truly yours,
<PAGE>
SCHEDULE I
----------
Applicable Contracts
--------------------
Purchase and License Agreement between the Company and Williams Communications,
Inc. dated March 5, 1999
Addendum to Purchase and License Agreement between the Company and Williams
Communications, Inc. dated November 21, 1999
Manufacturing Services Agreement between the Company and Celestica Corporation
dated February 9, 2000.
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
Lease Agreement between WA/TIB Real Estate Limited Partnership and the Company
effective September 20, 1999
Form of Indemnification Agreement between the Company and each of Timothy A.
Barrows, Anita Brearton, Gururaj Deshpande, John Dowling, Paul J. Ferri, John W.
Gerdelman, Frances M. Jewels, Jeffry A. Kiel, Kevin J. Oye, Chikong Shue, Daniel
E. Smith, Kurt Trampedach and Ryker Young, each dated November 17, 1999
Form of Change in Control Agreement between the Company and each of Anita
Brearton, Gururaj Deshpande, John Dowling, Frances M. Jewels, Jeffry A. Kiel,
Kevin J. Oye, Chikong Shue, Daniel E. Smith, Kurt Trampedach and Ryker Young,
each dated November 17, 1999
Promissory Note and Pledge Agreement dated October 20, 1999 between the Company
and Kevin Oye, Vice President of Business Development
Promissory Note dated February 25, 1999 between the Company and Eric Swanson
Promissory Note dated June 16, 1999 between the Company and Eric Swanson
Lease Agreement between the Company and New Boston Mill Road Limited
Partnership dated March 8, 2000
Assignment of Subleases between the Company and Thermedics Detection, Inc. dated
March 8, 2000
<PAGE>
SCHEDULE II
APPLICABLE ORDERS
None
<PAGE>
MORGAN STANLEY & CO. INCORPORATED
March [ ], 2000
Page 1
EXHIBIT C
Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
March [ ], 2000
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
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Re: Sycamore Networks, Inc.
Public Offering of Common
Stock, par value $.001 per share
--------------------------------
Ladies and Gentlemen:
We have acted as special counsel to the stockholders (the "Selling
Stockholders") of Sycamore Networks, Inc., a Delaware corporation (the
"Company"), listed on Schedule I hereto (the "Selling Stockholders") in
connection with the Underwriting Agreement, dated March [ ], 2000 (the
"Underwriting Agreement"), between the Company, the Selling Stockholders, 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 as the several Underwriters named
therein (the "Underwriters"), relating to the sale to the several Underwriters
by the Company of 12,394,707 shares (the "Primary Shares") of the Company's
common stock, par value $.001 per share ("Common Stock"), and by the Selling
Stockholders of 2,605,293 shares of Common Stock (the "Secondary Shares" and,
together with the Primary Shares, the "Shares").
This opinion is being furnished pursuant to Section 6(d) of the
Underwriting Agreement.
<PAGE>
MORGAN STANLEY & CO. INCORPORATED
March [ ], 2000
Page 2
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement on Form S-1 (File No. 333-30630) relating to the Shares, filed with
the Securities and Exchange Commission (the "Commission") on February 18, 2000
under the Securities Act of 1933, as amended (the "Act"), Amendment No. 1
thereto filed with the Commission on February 28, 2000, and Amendment No. 2
thereto filed with the Commission on _____ 2000, including information deemed to
be a part of the registration statement at the time of effectiveness pursuant to
Rule 430A of the General Rules and Regulations under the Act (the "Rules and
Regulations") (such Registration Statement, as so amended, being hereinafter
referred to as the "Registration Statement"); (ii) the final prospectus, dated
_____ 2000, relating to the Shares in the form filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations (the "Prospectus"); (iii) a
specimen certificate representing the Common Stock; (iv) an executed copy of
the Underwriting Agreement; (v) the Certificate of Incorporation of the Company,
as currently in effect (the "Certificate of Incorporation"); (vi) the By-laws of
the Company, as currently in effect (the "By-laws"); (vii) certificates
representing the Secondary Shares, together with stock powers executed by each
of the Selling Stockholders; (ix) copies of the Custody Agreement and Power of
Attorney executed by each of the Selling Stockholders; (x) the trust agreement
for the Gururaj Deshpande Grantor Retained Annuity Trust dated April 20, 1999;
and (xi) the trust agreement for The Shue 1999 Trust dated August 11, 1999. We
have also examined originals or copies, certified or otherwise identified to
our satisfaction, of such records of the Company and such agreements,
certificates of public officials, certificates of the Selling Stockholders,
officers or other representatives of the Company and others, and such other
documents, certificates and records as we have deemed necessary or appropriate
as a basis for the opinions set forth herein.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all
<PAGE>
MORGAN STANLEY & CO. INCORPORATED
March [ ], 2000
Page 3
signatures, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified
or photostatic copies and the authenticity of the originals of such latter
documents. In making our examination of executed documents, we have assumed that
the parties thereto, other than the Selling Stockholders, had the power,
corporate or other, to enter into and perform all obligations thereunder and
have also assumed the due authorization by all requisite action, corporate or
other, and execution and delivery by such parties of such documents and the
validity and binding effect thereof on such parties. As to any facts material to
the opinions expressed herein which we did not independently establish or
verify, we have relied upon oral or written statements and representations of
the Selling Stockholders, officers and other representatives of the Company and
others.
As used herein, (i) the term "Applicable Laws" means those laws of the
Commonwealth of Massachusetts and the United States of America that, in each
case, in our experience, are normally applicable to transactions of the type
contemplated by the Underwriting Agreement (except for United States, state and
foreign securities or Blue Sky laws, anti-fraud laws and the rules and
regulations of the National Association of Securities Dealers, Inc.) but without
our having made any special investigation regarding any other laws; (ii) the
term "Governmental Authorities" means any federal or Massachusetts executive,
legislative, judicial, administrative or regulatory body; (iii) the term
"Applicable Orders" means those judgments, orders or decrees of any Governmental
Authorities specifically identified to us by the Selling Stockholders to be
applicable to any of them, as identified on Schedule II hereto; and (iv) the
term "Governmental Approval" means any consent, approval, license,
authorization or validation of, or filing, qualification or registration with,
any Governmental Authority required to be made or obtained by the Selling
Stockholders pursuant to Applicable Laws, other than any consent, approval,
license, authorization, validation, filing, qualification or registration which
may have become applicable as a
<PAGE>
MORGAN STANLEY & CO. INCORPORATED
March [ ], 2000
Page 4
result of your or the Company's involvement in the transactions contemplated by
the Underwriting Agreement or because of your or the Company's legal or
regulatory status or because of any other facts specifically pertaining to you
or the Company.
Members of our firm are admitted to the bar in the Commonwealth of
Massachusetts and the State of New York, and we do not express any opinion as to
the laws of any other jurisdiction other than the laws of the United States of
America to the extent referred to specifically herein. It should be noted that
we do not generally represent any of the Selling Stockholders, our
representation of them being limited to matters specifically related to the
transactions contemplated by the Underwriting Agreement.
Based upon and subject to the limitations, qualifications, exceptions
and assumptions set forth herein, we are of the opinion that:
1. The Underwriting Agreement has been duly authorized,
executed and delivered by or on behalf of each of the Selling
Shareholders.
2. The execution and delivery by each Selling Shareholder of,
and the performance by such Selling Shareholder of its obligations
under, the Underwriting Agreement and the Custody Agreement and Power
of Attorney of such Selling Shareholder will not contravene any
Applicable Law, or, to our knowledge, any agreement or other instrument
binding upon such Selling Shareholder or, to our knowledge, any
Applicable Order, and no Governmental Approval is required for the
performance by such Selling Shareholder of its obligations under the
Underwriting Agreement or the Custody Agreement and Power of Attorney
of such Selling Shareholder, except such as have been obtained or made
under the Securities Act and such as may be required by the securities
or Blue Sky laws of the various states in connection with offer and
sale of the Shares.
<PAGE>
MORGAN STANLEY & CO. INCORPORATED
March [ ], 2000
Page 5
3. To our knowledge, each of the Selling Shareholders has sole
and exclusive rights and interests in and to the Shares to be sold by
such Selling Shareholder and the legal right and power, and all
authorization and approval required by law, to enter into the
Underwriting Agreement and the Custody Agreement and Power of Attorney
of such Selling Shareholder and to sell, transfer and deliver the
Shares to be sold by such Selling Shareholder.
4. The Custody Agreement and the Power of Attorney of each
Selling Shareholder have been duly authorized, executed and delivered
by such Selling Shareholder.
5. Assuming that none of the Underwriters has notice of any
adverse claims with respect to the certificates registered in the name
of the Selling Shareholders and evidencing the Shares to be sold by the
Selling Shareholders, upon delivery to Morgan Stanley for the benefit
of the Underwriters of such certificates endorsed in blank by an
effective endorsement, Morgan Stanley for the benefit of the
Underwriters will acquire such certificates (and the Shares
represented thereby) free of any adverse claims under Section 8-303 of
the Uniform Commercial Code as in effect on the date hereof in the
Commonwealth of Massachusetts (the "Massachusetts UCC"). As used
herein, "notice of adverse claim" has the meaning set forth in Section
8-105 of the Massachusetts UCC and includes, without limitation, any
claim which any Underwriter would discovery upon any investigation
which such person has a duty, imposed by statute or regulation, to
investigate.
<PAGE>
MORGAN STANLEY & CO. INCORPORATED
March [ ], 2000
Page 6
This opinion is furnished to you solely for your benefit in connection
with the closing under the Underwriting Agreement occurring today and is not to
be used, circulated, quoted or otherwise referred to for any other purpose or
relied upon by any other person without our express written permission.
Very truly yours,
<PAGE>
[SASM&F Letterhead]
March 8, 2000
Sycamore Networks, Inc.
10 Elizabeth Drive
Chelmsford, Massachusetts 01854
Re: Sycamore Networks, Inc.
Registration on Form S-1
------------------------
Ladies and Gentlemen:
We have acted as special counsel to Sycamore Networks, Inc., a
Delaware corporation (the "Company"), in connection with the public offering by
the Company and certain selling stockholders of the Company (the "Selling
Stockholders") of up to 17,250,000 shares (the "Shares") of the Company's Common
Stock, par value $.001 per share (the "Common Stock"). Of the Shares, up to
14,644,707 shares of Common Stock (the "Primary Shares") are being sold by the
Company, including up to 2,250,000 shares of Common Stock subject to an
over-allotment option, and 2,605,203 shares of Common Stock (the "Secondary
Shares") are being sold by the Selling Stockholders.
This opinion is being furnished in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended
(the "Act").
In connection with this opinion, we have exam ined originals or
copies, certified or otherwise identi fied to our satisfaction, of (i) the
Company's Registra tion Statement on Form S-1 (File No. 333-30630) as filed with
the Securities and Exchange Commission (the "Commis sion") on February 17, 2000
under the Act, and Amendment No. 1 thereto, as filed with the Commission under
the Securities Act on February 28, 2000 and Amendment No. 2 thereto, as filed
with the Commission under the Securities
<PAGE>
Sycamore Networks, Inc.
March 8, 2000
Page 2
Act on March 9, 2000 (such Registration Statement, as so amended, being
hereinafter referred to as the "Registration Statement"); (ii) the form of the
Under writing Agreement (the "Underwriting Agreement") proposed to be entered
into between the Company, as issuer, the Selling Stockholders and Morgan Stanley
& Co. Incorpo rated, Credit Suisse First Boston, Lehman Brothers Inc., J.P.
Morgan Securities Inc., Dain Rauscher Incorporated, FleetBoston Robertson
Stephens Inc. and Thomas Weisel Partners LLC, as underwriters (the
"Underwriters"), filed as an exhibit to the Registration Statement; (iii) a
specimen certificate representing the Common Stock; (iv) the Certificate of
Incorporation of the Company, as presently in effect; (v) the By-Laws of the
Company, as presently in effect; (vi) certain resolutions of the Board of
Directors of the Company relating to the origi nal issuance of the Secondary
Shares and certain stock and other records of the Company relating thereto; and
(vii) certain resolutions of the Board of Directors of the Company and drafts of
certain resolutions (the "Draft Resolutions") of the Pricing Committee of the
Board of Directors of the Company (the "Pricing Committee"), in each case
relating to the issuance and sale of the Pri mary Shares and related matters. We
have also examined originals or copies, certified or otherwise identified to our
satisfaction, of such records of the Company and such agreements, certificates
of public officials, certifi cates of officers or other representatives of the
Company and others, and such other documents, certificates and records as we
have deemed necessary or appropriate as a basis for the opinions set forth
herein.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the origi nals of such latter documents. In making our
examination of documents executed or to be executed by parties other than the
Company, we have assumed that such parties had or will have the power, corporate
or other, to enter into and perform all obligations thereunder and have also
assumed the due authorization by all requisite action, corporate or other, and
execution and delivery by such
2
<PAGE>
Sycamore Networks, Inc.
March 8, 2000
Page 3
parties of such documents and the validity and binding effect thereof. As to any
facts material to the opinions expressed herein which we have not independently
estab lished or verified, we have relied upon statements and representations of
officers and other representatives of the Company and others.
In connection with our opinion set forth in paragraph 2 below, insofar
as it relates to receipt by the Company of full payment upon the original
issuance of the Secondary Shares, we have relied solely on the repre sentations
contained in the officer's certificate at tached as Exhibit A hereto. In
connection with such opinion we have also assumed that the certificates repre
senting the Secondary Shares were manually signed by one of the authorized
officers of the Transfer agent and registrar for the Common Stock and registered
by such transfer agent and registrar and conform to the specimen thereof
examined by us.
Members of our firm are admitted to the bar in the State of Delaware,
and we do not express any opinion as to the laws of any other jurisdiction.
Based upon and subject to the foregoing, we are of the opinion that:
1. When (i) the Registration Statement be comes effective; (ii) the
Draft Resolutions have been adopted by the Pricing Committee of the Board of
Direc tors; (iii) the price at which the Primary Shares are to be sold to the
Underwriters pursuant to the Underwriting Agreement and other matters relating
to the issuance and sale of the Primary Shares have been approved by the Pricing
Committee of the Board of Directors in accordance with the Draft Resolutions;
(iv) the Underwriting Agree ment has been duly executed and delivered; and (v)
certificates representing the Primary Shares in the form of the specimen
certificates examined by us have been manually signed by an authorized officer
of the transfer agent and registrar for the Common Stock and registered by such
transfer agent and registrar, and delivered to and paid for by the Underwriters
at a price per share not less than the per share par value of the Common Stock
as contemplated by the Underwriting Agreement, the issuance
3
<PAGE>
Sycamore Networks, Inc.
March 8, 2000
Page 4
and sale of the Primary Shares will have been duly autho rized, and the Primary
Shares will be validly issued, fully paid and nonassessable.
2. The original issuance and sale of the Secondary Shares has been
duly authorized, and such Secondary Shares are validly issued, fully paid and
nonassessable shares of Common Stock.
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement. We also consent to the reference to
our firm under the caption "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are included in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission.
Very truly yours,
[Skadden, Arps, Slate, Meagher & Flom]
4
<PAGE>
LEASE AGREEMENT
---------------
LANDLORD: NEW BOSTON MILL ROAD LIMITED PARTNERSHIP
TENANT: SYCAMORE NETWORKS, INC.
PREMISES: 220 MILL ROAD
CHELMSFORD, MASSACHUSETTS
SUBMISSION NOT AN OPTION
========================
THE SUBMISSION OF THIS LEASE FOR EXAMINATION AND NEGOTIATION DOES NOT CONSTITUTE
AN OFFER TO LEASE, A RESERVATION OF, OR OPTION FOR THE PREMISES AND SHALL VEST
NO RIGHT IN ANY PARTY. TENANT OR ANYONE CLAIMING UNDER OR THROUGH TENANT SHALL
HAVE THE RIGHTS TO THE PREMISES AS SET FORTH HEREIN AND THIS LEASE BECOMES
EFFECTIVE AS A LEASE ONLY UPON EXECUTION, ACKNOWLEDGMENT AND DELIVERY THEREOF BY
LANDLORD AND TENANT TO EACH OTHER, REGARDLESS OF ANY WRITTEN OR VERBAL
REPRESENTATION OF ANY AGENT, MANAGER OR EMPLOYEE OF LANDLORD TO THE CONTRARY.
FROM THE OFFICE OF:
RAPPAPORT, ASERKOFF AND RAPPAPORT
ONE LONGFELLOW PLACE
SUITE 3611
BOSTON, MA 02114
<PAGE>
LEASE
NEW BOSTON MILL ROAD LIMITED PARTNERSHIP
("LANDLORD")
TO
SYCAMORE NETWORKS, INC.
("TENANT")
TABLE OF CONTENTS
-----------------
SECTION I. PREMISES........................................... 1
SECTION II. USE................................................ 1
SECTION III. TERM............................................... 2
SECTION IV. RENT............................................... 2
SECTION V. CONSTRUCTION AND PREPARATION OF THE PREMISES....... 3
SECTION VI. BUILDING AND EQUIPMENT............................. 4
SECTION VII. FLOOR LOAD, HEAVY MACHINERY........................ 6
SECTION VIII. SERVICES........................................... 6
SECTION IX. UTILITIES.......................................... 6
SECTION X. ADDITIONAL RENT.................................... 6
SECTION XI. REMOVAL OF GOODS AND TENANT'S REPAIRS. ............ 12
SECTION XII. SALES TAX.......................................... 12
SECTION XIII. IMPROVEMENTS AND ALTERATIONS....................... 12
SECTION XIV. INSPECTION......................................... 13
SECTION XV. CASUALTY........................................... 13
SECTION XVI. EMINENT DOMAIN..................................... 14
SECTION XVII. INDEMNIFICATION.................................... 15
SECTION XVIII. PROPERTY OF TENANT................................. 16
SECTION XIX. INJURY AND DAMAGE.................................. 17
SECTION XX. ASSIGNMENT, MORTGAGING, AND SUBLETTING............. 17
SECTION XXI. SIGNS, BLINDS AND WINDOW TREATMENTS................ 19
SECTION XXII. INSURANCE COMPLIANCE............................... 19
SECTION XXIII. INFLAMMABLES, ODORS................................ 19
SECTION XXIV. DEFAULT............................................ 19
SECTION XXV. SUBORDINATION AND ESTOPPEL......................... 21
SECTION XXVI. NOTICES............................................ 23
SECTION XXVII INTENTIONALLY DELETED.............................. 23
SECTION XXVIII. QUIET ENJOYMENT.................................... 23
SECTION XXIX. BINDING AGREEMENT.................................. 23
SECTION XXX. PARTNERSHIP........................................ 24
SECTION XXXI. SEISIN............................................. 24
SECTION XXXII. INSURANCE.......................................... 24
SECTION XXXIII. SUBROGATION, INSURANCE PREMIUMS.................... 26
SECTION XXXIV. SHORING............................................ 26
SECTION XXXV. REZONING........................................... 26
SECTION XXXVI. SEVERABILITY....................................... 26
SECTION XXXVII. WAIVER OF TRIAL BY JURY............................ 26
SECTION XXXVIII. NO WAIVER.......................................... 27
SECTION XXXIX. HOLDING OVER....................................... 27
2
<PAGE>
SECTION XL. CAPTIONS, PLURAL, GENDER........................... 27
SECTION XLI. BROKERAGE.......................................... 27
SECTION XLII. HAZARDOUS WASTE.................................... 28
SECTION XLIII. SECURITY DEPOSIT................................... 29
SECTION XLIV. LANDLORD'S RIGHT TO PERFORM FOR TENANT............. 31
SECTION XLV. GOVERNING LAW...................................... 32
SECTION XLVI. THERMEDICS TERMINATION............................. 32
SECTION XLVII. ASSIGNMENT OF SUBLEASES............................ 33
SECTION XLVIII. RENEWAL OPTION..................................... 34
SECTION XLIX. FORCE MAJEURE...................................... 36
SECTION L. MULTIPLE COUNTERPARTS.............................. 36
3
<PAGE>
THIS LEASE (the "LEASE") made and entered into as of this 8th day of March,
2000 by and between NEW BOSTON MILL ROAD LIMITED PARTNERSHIP, a Delaware Limited
Partnership, having a business address at One Longfellow Place, Suite 3612,
Boston, Massachusetts 02114 (hereinafter called "LANDLORD") and SYCAMORE
NETWORKS, INC., a Delaware corporation (hereinafter called "TENANT").
SECTION I. PREMISES. Landlord leases to Tenant, and Tenant hereby hires and
--------- --------
takes from Landlord the entire building commonly known as 220 Mill Road,
Chelmsford, Massachusetts (the "PREMISES"), consisting of 113,706 square feet of
net rentable area (the "NET RENTABLE AREA") located on the parcel of land
described on Exhibit A attached to this Lease (the "LAND"), together with the
right, appurtenant to the Premises, to the exclusive use of (1) all landscaping,
parking areas, loading docks, loading areas and other buildings and improvements
on the Land other than the Premises, and (2) whether located on the Land or on
other land or property, all driveways and walkways necessary for access to the
Premises, all retention ponds and other improvements and facilities providing
drainage for the benefit of the Land and the Premises, and all wires, cables,
poles, mains, conduits, trenches, manholes and other fixtures, facilities and
equipment necessary or convenient to provide electricity, telephone, cable, gas,
water, sewer and other utility and telecommunications services to the Premises
(items (1) and (2) herein shall hereafter be collectively referred to as the
"COMMON FACILITIES"). The Premises, the Land and the Common Facilities are
hereinafter collectively called the "PROPERTY". Landlord shall deliver the
Premises to Tenant, free of tenants and occupants (except the Permitted
Subtenants (as hereinafter defined) and their trade fixtures and personal
property, on or before June 1, 2000. In the event of failure to deliver the
Premises as stated in the preceding sentence, Tenant's sole remedy shall be as
provided in Section III hereof.
SECTION II. USE. Tenant shall have the right to use the Premises for
---------- ---
administration, sales and other general office purposes, research and
development (including engineering laboratories), and design, assembly, testing,
storage and shipping of electronic products and components, subject to all
applicable laws and ordinances imposed by any governmental authority having
jurisdiction thereon.
Tenant agrees that, if it vacates the Premises, or fails to conduct its
business therein at any time during the term hereof, it shall provide Landlord
with prior written notice thereof.
<PAGE>
SECTION III. TERM. The term of this Lease shall commence on the date of the
----------- ----
delivery of the Premises to Tenant, free and clear of all tenants and occupants,
except for the Permitted Subtenants (the "COMMENCEMENT DATE"), and shall
terminate on the last day of the eighty-fourth (84th) full calendar month
thereafter. If the Commencement Date does not occur by June 1, 2000, Tenant
shall have the right to terminate this Lease by written notice to Landlord and
Thermedics (as hereinafter defined), which termination shall be effective twenty
days after Landlord receives such notice from Tenant unless Landlord cause the
Commencement Date to occur before the end of such twenty-day period. If such
twenty-day period passes without the Commencement Date occurring, the Escrow
Agent (as hereinafter defined) shall promptly return the Thermedics Termination
Fee (as hereinafter defined) to Tenant, and this Lease shall terminate without
any further liability or obligation of either Landlord or Tenant to the other
party.
SECTION IV. RENT. Tenant shall pay an annual "RENT" of $1,193,913, in equal
---------- ----
monthly installments of $99,492.75 in advance on the first day of each calendar
month during the term of this Lease; provided, however, as a reimbursement to
Tenant for a portion of the costs and expenses incurred in connection with the
Tenant's Work (as hereinafter defined), Tenant shall receive a credit against
Rent due under the Lease in the amount of $29,166.66 per month for the first
twelve full calendar months of the term of this Lease and $2,777.78 per month
for the balance of the original term of this Lease.
Tenant shall pay a proportionate share of such monthly installment for any
partial calendar month at the beginning or end of the Lease term equal to 1/30
of such monthly installment for each day of such partial month included within
the term of this Lease.
Tenant shall pay the Rent and Additional Rent (as hereinafter defined)
without demand or notice and without deduction, abatement, counterclaim, or
set-off, except as otherwise provided in this Lease, to the Landlord in care of
New Boston Management Services, Inc., Agent for New Boston Mill Road Limited
Partnership, One Longfellow Place, Suite 3612, Boston, Massachusetts 02114-2434,
or at such other place as designated from time to time by Landlord in writing.
In the event that the Rent is not paid when due, Landlord shall assess and
Tenant shall pay a late charge in an amount equal to interest at the rate of one
and one-half percent (1 1/2%) per month on the unpaid balance from the date said
Rent became due. All other charges which Tenant is required to pay hereunder,
together with all interest and penalties that may accrue thereon, shall be
deemed to be "ADDITIONAL RENT" and in the event of non-payment thereof by
Tenant, Landlord
2
<PAGE>
shall have all the rights and remedies with respect thereto as would accrue to
Landlord for non-payment of Rent.
SECTION V. CONSTRUCTION AND PREPARATION OF THE PREMISES.
--------- --------------------------------------------
(a) Landlord's Work. The Premises shall be delivered to Tenant in its
---------------
"as-is" condition and the taking of possession of the Premises by Tenant shall
be conclusive evidence of the acceptance of the Premises by Tenant and that the
Premises are in good and satisfactory condition, in accordance with Landlord's
obligations hereunder.
(b) Tenant's Work. Tenant shall complete the alterations, additions and
-------------
improvements to the Premises (herein referred to as "TENANT'S WORK"), in a good
and workmanlike manner in accordance with Plans and Specifications (as
hereinafter defined) which have Landlord's written approval prior to the
commencement of Tenant's Work, which approval Landlord shall not unreasonably
withhold, delay or condition; provided, however, Tenant shall have the right,
without Landlord's prior consent or the obligation to submit Plans and
Specifications to Landlord for approval but upon prior notice to Landlord, to
complete alterations, additions or improvements to the Premises which (x) do not
cost more than $50,000 in any single instance, (y) do not have any effect on the
roof, foundation or other structural components of the Premises or the exterior
of the Premises, and (z) do not have any material, adverse effect on the
Building Systems (as hereinafter defined) (such alterations, additions and
improvements being the "EXEMPT ALTERATIONS"). Within five business days after
Tenant delivers any preliminary or final Plans and Specifications to Landlord,
Landlord shall respond in writing to Tenant either with Landlord's approval of
such Plans and Specifications or with its disapproval, together with a
reasonably detailed written explanation of Landlord's reasonable justifications
for such disapproval. Tenant shall furnish and install any and all necessary
trade fixtures, equipment and other items necessary for the proper conduct of
Tenant's business. "Plans and Specifications", as used in this Section V(b) and
in Section XIII, shall mean documents and drawings sufficient for contract
bidding and work completion. All of the foregoing work and all work Tenant may
undertake pursuant to Section XIII of this Lease shall be done in accordance
with all laws, rules, regulations and ordinances applicable thereto, including,
if necessary, compliance with the Americans With Disabilities Act of 1990, as
amended from time to time, and a building permit from the municipal department
having jurisdiction, if required. In no event shall Landlord be required to
provide or install any trade fixtures or equipment.
Tenant shall require all contractors employed by Tenant to carry Worker's
Compensation Insurance in accordance with statutory requirements and to carry
3
<PAGE>
Commercial General Liability Insurance and Automobile Liability Insurance
covering such contractors in or about the Premises, Building and Property in
amounts not less than Two Million Dollars ($2,000,000) combined single limits
for property damage, for injury or death of more than one person in a single
accident, and to submit certificates of insurance evidencing such coverage to
Landlord prior to commencement of such work. Tenant agrees to indemnify and hold
harmless Landlord and its management agent from all claims, actions, demands and
causes of actions occasioned by acts or negligence of Tenant's contractors on or
about the Premises or the Building or the Property.
All contractors, subcontractors, mechanics, laborers, materialmen, and others
who perform any work, labor or services, or furnish any materials, or otherwise
participate in the labor or services, or furnish any materials, or otherwise
participate in the improvement of the Premises shall be and are hereby given
notice that Tenant is not authorized to subject Landlord's interest in the
Premises, Building or Property to any claim for mechanics', laborers' and
materialmen's liens, and all persons dealing directly or indirectly with Tenant
may not look to the Premises, Building or Property as security for payment.
Tenant shall save Landlord harmless from and against all such liens and all
claims of damage to either property or persons arising out of the performance of
Tenant's Work.
SECTION VI. BUILDING AND EQUIPMENT.
---------- ----------------------
(a) Landlord's Obligation. Subject to Section XV and XVI of this Lease,
---------------------
Landlord shall perform all maintenance, repairs and replacements necessary to
keep the foundation, exterior walls and other structural components of the
Premises and, except for any maintenance and repairs required of Tenant under
Section VI(b) of this Lease, the Common Facilities and the roof in good order,
condition and repair and in compliance with all applicable laws. Landlord shall
in no event be responsible for the maintenance or repair of exterior glass or
for the doors leading to the Premises, or for any condition in the Premises and
Common Facilities caused by any act or negligence of Tenant, its invitees,
agents or contractors.
If, in the judgment of an independent consultant or engineer mutually
agreeable to Landlord and Tenant, based on industry standards and good building
management practices, any portion of the roof can no longer, by ordinary repairs
and maintenance, be maintained in such good order, condition and repair as is
necessary to avoid any damage to the Premises and any adverse effect on Tenant's
use and enjoyment of the Premises, then Landlord shall promptly perform such
replacement, and the cost of such replacement shall be amortized over the useful
life of the roof, and such amortized annual charge shall be included in
Operating Costs for the then current year and each subsequent year during the
Term, as provided in Section X hereunder.
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(b) Tenant's Obligations. Except for Landlord's obligations under Section
--------------------
VI(a) of this Lease, and subject to Section XV and XVI of this Lease, Tenant
shall (1) keep the Premises neat and clean; (2) shall perform all maintenance,
repairs and replacements to the roof (except for such replacements under Section
VI(a) above) and all interior, non-structural areas and components of the
Premises, including without limitation the interior and entry doors, interior
and exterior glass and windows, partitions, walls (other than the exterior,
structural or load-bearing walls) and loading docks, and any heating,
ventilation, air-conditioning, plumbing, mechanical, sprinkler, alarm and
electrical systems serving the Building (the "BUILDING SYSTEMS"); and (3) shall
perform only ordinary maintenance and repairs to the landscaping, loading areas,
walkways, driveways and parking areas on the Property, including reasonable
removal of snow and ice, but excluding any replacements or any repairs to the
Common Facilities, the cost of which is properly characterized as a capital
expenditure under generally accepted accounting principles or the regulations of
the Internal Revenue Service (in the event replacements or repairs to the Common
Facilities are required which are properly characterized as capital
expenditures, Tenant shall give Landlord notice of the same); but only to the
extent reasonably necessary to keep such interior, non-structural areas and
components of the Premises and such landscaping, loading areas, walkways,
driveways and parking areas in as good order, condition and repair as exists as
of the Commencement Date or such improved order, condition and repair as exists
after the completion of Tenant's Work, except only for reasonable wear and tear
and damage from fire, casualty or eminent domain. Tenant agrees that all
maintenance, repairs and replacements required of Tenant under this Section
VI(b) shall be performed either by a professional maintenance companies
reasonably satisfactory to Landlord, in which case Tenant shall supply Landlord
with contracts with such companies, or by employees of Tenant experienced and,
if required by law, licensed to perform such maintenance, repairs and
replacements.
All costs of replacements or additions to the heating, ventilation and
air-conditioning systems and equipment in the Premises (the "HVAC SYSTEM") (i)
during the first year of the term of this Lease or (ii) to meet a specific
demand or need of Tenant, whenever occurring, shall be borne by Tenant. If
Tenant makes any replacements of an entire roof-top unit of the HVAC System,
other than replacements described in the preceding sentence, and if the cost of
such replacements are properly characterized as a capital expenditure in
accordance with generally accepted accounting principles and the regulations of
the Internal Revenue Service, Landlord shall reimburse Tenant for such costs up
to $50,000 per year and an aggregate maximum of $300,000 over the term of this
Lease. If Tenant performs any such replacement to the equipment associated with
the HVAC
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System on the roof of the Premises without Landlord's prior written consent,
which Landlord shall not unreasonably withhold, delay or condition, Tenant shall
not receive any reimbursement from Landlord on account of such replacement.
SECTION VII. FLOOR LOAD, HEAVY MACHINERY. Tenant shall not place a load upon
----------- ---------------------------
any floor of the Premises exceeding the floor load per square foot area which
floor was designed to carry and which is allowed by law. Business machines and
mechanical equipment shall be placed and maintained by Tenant at Tenant's
expense in settings sufficient to prevent transmission of noise and vibration to
any other part of the Building in which the Premises are located. Any moving of
any machinery and/or equipment into, out of, or within the Premises shall be
done at the sole risk and hazard of Tenant, and Tenant will indemnify and save
Landlord harmless against and from any liability, loss, injury, claim or suit
resulting from such moving. In the event riggers shall be required to accomplish
such moving, only persons holding a Master Rigger's License shall perform the
work. Without Landlord's prior consent, which shall not be unreasonably
withheld, delayed or conditioned, Tenant shall not in any way break, cut into,
or damage the exterior perimeter walls or insulating panels of the Building in
installing, ventilating or exhausting its equipment or in any other manner.
SECTION VIII. SERVICES. Tenant shall make all arrangements and pay all costs
------------ --------
for all services which are required for the proper operation of its business on
the Premises, including, but not limited to all window cleaning, janitorial
services, trash collection and removal, snow removal and maintenance of grass,
parking lot areas landscaping (in accordance with Section VI of this Lease).
SECTION IX. UTILITIES. Tenant shall make all arrangements and pay all costs
---------- ---------
for utilities furnished to the Property, which may include gas and electricity
and telephone services furnished to the Property and to the heating, ventilating
and air conditioning units serving the Premises.
At Landlord's option, Landlord may pay for water and sewer charges, and,
upon receipt of an invoice for same, Tenant shall reimburse Landlord for all
such charges within 30 days of receipt of an invoice for same.
SECTION X. ADDITIONAL RENT. In addition to the Rent set forth in Section IV
--------- ---------------
of this Lease and as part of the rent due pursuant to the terms of this Lease,
Tenant shall pay to Landlord, as Additional Rent, in the manner and at the times
set forth in this Section X, one hundred percent (100%) of the Taxes and the
Operating Costs (as hereinafter defined) paid or incurred by Landlord during any
full or partial calendar year included in the term of this Lease; provided;
however, if the
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term of this Lease includes any partial calendar year, Tenant shall pay only
1/365 of the Taxes and Operating Costs for each day of such calendar year
falling within the term of this Lease. As used in this Section X the following
words and terms shall have the following meaning:
(a) "TAXES" shall mean the real estate taxes and assessments imposed upon
Landlord with respect to the parcel identified by the Town of Chelmsford as Map
0127, Block 0024, Lot 7811 commonly known as 220 Mill Road, Chelmsford,
Massachusetts, as such parcel is defined in the records of the Town of
Chelmsford as of the date of this Lease, including all structures located
thereon, and any and all other taxes, levies, betterments, assessments and
charges arising from the ownership and/or operation of said parcel and all the
structures located thereon (excluding income taxes), which are or shall be
imposed by a national, state or municipal or other authorities and which are or
may become a lien upon Landlord and/or said parcel, but excluding any fee or
penalty levied on Landlord for late payment thereof. Landlord shall pay any
Taxes over the maximum period permitted under law, and Taxes payable by Tenant
during any calendar year shall include only such portion of any Taxes required
to be paid under law during such calendar year. If, or to the extent that, due
to a future change in the method of taxation any franchise, revenue, profit or
other tax shall be levied against Landlord in substitution or in lieu of any tax
which would otherwise constitute a real estate tax, such franchise, revenue,
profit or other tax shall be deemed to constitute "Taxes" for the purposes
hereof. Any other provision of this Section X notwithstanding, Taxes shall not
include, and Tenant shall have no obligation to pay, any taxes attributable to
Landlord's net income, property other than the Property, revenue not derived
from the Property or Landlord's operations independent of the Property. It is
recognized and agreed by Landlord and Tenant that it is their intention by this
paragraph to include in "Taxes" that which in tax year 2000 was commonly known
in Chelmsford as "real estate taxes", including that portion covered by the
school tax rate, and any type of tax or assessment which may, throughout the
term hereof be substituted, in whole or in part therefore. If, in any fiscal tax
year after fiscal tax year 2000, the Town of Chelmsford or any of its
departments shall require Landlord to pay for any service which during the
fiscal tax year 2000 was provided by said Town of Chelmsford or any of its
departments without requiring payment by Landlord, then all such payments due on
account of services rendered during any fiscal tax year after fiscal tax year
2000 shall, for purposes of this Section X(a), be considered and treated as real
estate taxes for the fiscal tax year for which such payments are due. Without in
any way limiting the generality of the preceding sentence, some of the services
for which the Town of Chelmsford or any of its departments might require payment
are: police protection, fire protection, public schools, library services, park
services,
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building inspections. Water and sewer use charges are covered elsewhere in this
Lease and the same shall not enter into the calculations made under this Section
X(a). Landlord represents and warrants to Tenant that to the best of its
knowledge, each taxing authority assesses the Land and the Premises separately
from any other land or other rentable buildings or improvements (other than
improvements serving the Premises exclusively), and that the assessed valuation
of the Property does not include the value of any such other land other rentable
buildings or improvements, whether owned by Landlord or any other person or
entity.
(b) "TAX YEAR" shall mean the twelve (12) month period commencing July 1 in
any calendar year and each twelve (12) month period commencing on an anniversary
of said date during the term of this Lease.
(c) Tenant shall make monthly payments to Landlord on account of Taxes
payable by Tenant under this Section X during the current calendar year and each
subsequent calendar year thereafter falling entirely or partly within the term
of this Lease. The amount of such monthly payments shall be determined as
follows: On the Commencement Date, Landlord shall submit to Tenant a statement
setting forth Landlord's reasonable estimates (based on costs of which Landlord
is aware and other reasonable assumptions of Landlord) of the amount of Taxes
that are expected to be incurred during such calendar year, together with a copy
of the most current tax bills for the Property. Tenant shall pay to Landlord, on
the first day of each calendar month following receipt of such statement from
time to time, an appropriate amount to amortize such estimated Taxes for the
then current calendar year, based on the most current statement received from
Landlord, in equal monthly installments over the then balance of the then
current calendar year. Tenant's payment of Taxes shall be made without
deduction, setoff or demand, except as otherwise provided under this Lease, in
accordance with the provisions of Section IV of this Lease. If at any time
during the Lease Term, Landlord, in Landlord's reasonable judgment, based on
more current tax bills, determines it appropriate to revise the reasonable
estimates of Taxes which have been submitted, then Landlord may submit a
statement of such revised estimates to Tenant, and then commencing with the next
monthly payment to be made by Tenant, appropriate adjustment shall be made to
the amount being paid by Tenant on account of such estimated Taxes. Within one
hundred twenty (120) days after the expiration of each calendar year during the
term of this Lease, Landlord shall submit to Tenant a statement certified by
Landlord's comptroller stating (i) the actual Taxes payable by Tenant under this
Lease with respect to the preceding calendar year, (ii) the aggregate amount of
the estimated payments, if any, made by Tenant on account thereof, and (iii) any
credit to which Tenant is entitled. If the aggregate amount of Tenant's
estimated payments exceeds such actual Taxes,
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Tenant shall deduct such excess from its next estimated payment or payments for
Taxes or Operating Costs, or, after the end of the term of this Lease, Landlord
shall remit such excess to Tenant at the time Landlord delivers such certified
statement to Tenant. If such actual Taxes exceed such aggregate amount of the
estimated payments, if any, made by Tenant on account thereof, then Tenant shall
pay such excess to Landlord, as Additional Rent, within 30 days after notice
thereof.
Appropriate credit against Taxes shall be given for any refund obtained by
reason of a reduction or abatement in any Taxes by the courts or other
governmental agency responsible therefor. The original computation of Taxes for
any calendar year, as well as any reimbursement to, or payments from, Tenant on
account of Taxes, under the provisions of this Section X, shall be based on the
original assessed valuations of the Property, with adjustments to be made at a
later date when the tax refund or abatement, if any, shall be paid to Landlord
by the taxing authority. Expenditures for legal fees and for other similar or
dissimilar expenses incurred in obtaining the tax refund shall be charged
against the tax refund before the adjustments are made for the Tax Year. In no
event shall Tenant be entitled to receive a credit against Taxes for any fiscal
Tax Year in an amount greater than the Taxes for such fiscal Tax Year.
(d) "OPERATING COSTS" shall mean all costs incurred and expenditures paid or
incurred by Landlord in the operation, management, repair, cleaning and
maintenance of the Premises or Property or the related equipment and facilities
and appurtenant parking and landscaped areas, heating and cooling equipment,
including but not limited to the following:
1. All costs for fire, extended coverage, casualty, liability, worker's
compensation, rental interruption insurance, and all other insurance as may be
required by the holder of the mortgage upon the Property, or otherwise
reasonably required.
2. Water and sewer charges.
3. Costs of landscaping and snow removal.
4. Costs of rubbish removal.
5. Electricity and gas charges, including without limitation, the cost of
electric current for the operation of public lights inside and outside the
Premises, and the parking area.
6. Security service equipment and contracts, if any.
7. Exterminating services and contracts.
8. Wages including all fringe benefits, federal and state payroll,
unemployment and old age taxes paid by Landlord on account of Landlord's
employees, but only to the extent that they are employed in the operation,
management, repair, cleaning and maintenance of the Premises or Property.
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9. The cost of labor and materials used in cleaning the Premises and the
parking area and other areas of the Premises.
10. The cost of supplies.
11. The cost of any capital improvements to the Property after the
commencement of the term of this Lease for the purposes of (x) complying with
statutes, laws, by-laws, regulations, codes or orders enacted or promulgated
after the date of this Lease, or (y) complying with Landlord's obligations to
perform maintenance, repairs and replacements under Section VI(a), and including
without limitation Landlord's reimbursement of expenses pursuant to Section
VI(b) of this Lease, which cost shall be amortized over such improvement's
useful life (according to mutually acceptable industry practices), together with
interest on the unamortized balance of such cost at the rate which is two
percent (2%) above the prime rate from time to time charged by BankBoston or
such lower rate as may be paid by Landlord for funds borrowed to construct said
capital improvements it being agreed that in each calendar year there shall be
included in Operating Costs only such year's allocable share of the amortized
cost of such capital improvement and interest.
Notwithstanding any contrary provision of this Lease, Operating Costs shall
not include costs or expenses relating to the following:
(i) any such costs or charges paid directly by Tenant;
(ii) salaries, wages, benefits and other expenses of executive and
administrative employees and other employees involved in the operation or
management of the Premises above the level of building manager;
(iii) management fees;
(iv) compensation paid to employees or other persons in connection with
commercial concessions operated by Landlord;
(v) Landlord's general overhead not directly related to the operation
or maintenance of the Property;
(vi) depreciation of the Premises or other improvements on the
Property;
(vii) principal, interest or other charges relating to indebtedness
secured by a mortgage covering any portion of the Property, and payments of rent
and other charges under any ground lease or superior lease covering any portion
of the Property;
(viii) leasehold improvements made in connection with the preparation of
any portion of the Property for occupancy by a new or existing tenant;
(ix) any expansion of the rentable area of the Property;
(x) repairs necessary to cure defects in the original construction of
any portion or component of the Property;
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(xi) any capital expenditure other than the cost of capital
improvements specified in Section X(d)(11) of this Lease;
(xii) repairs and replacements arising out of a fire or other casualty
or an exercise of the eminent domain affecting the Property;
(xiii) any cost with respect to which Landlord is entitled to
reimbursement from insurance proceeds or from a third party; and
(xiv) efforts to lease portions of the Property or to procure new
tenants for the Property, including advertising expenses, leasing commissions
and attorney's fees;
(xv) negotiations or disputes with any tenant of the Premises;
(xvi) Landlord's breach or violation of a law, lease or other
obligation, including fines, penalties and attorneys' fees;
(xvii) the negligence or willful misconduct of Landlord or its agents,
employees, contractors or invitees;
(xviii) tests, investigations and reports concerning the possible
presence or the extent of any Hazardous Substance on or about the Property, the
remediation of such Hazardous Substances and the compliance with statutes, laws,
by-laws, regulations, codes, orders and judgments restricting, regulation,
prohibiting or otherwise concerning Hazardous Substances;
(xix) compliance by Landlord with laws existing as of the date of this
Lease, including without limitation the Americans with Disabilities Act and the
regulations and standards thereunder as apply to the exterior of the Building
and Common Facilities (excluding the interior of the Premises which are the
responsibility of the Tenant under Section VI(b); and
(xx) sculptures, paintings and other works of art.
(e) Tenant's Payment of Operating Costs. Tenant shall pay for all Operating
Costs on a timely basis either directly to the specific provider or to Landlord
within 30 days after receiving an invoice form Landlord for such Operating
Costs.
(f) Tenant's Payment of Landlord Fees. Tenant shall reimburse the Landlord
the sum of $477,888 for expenses and commission fees Landlord incurred in the
consummation of this Lease (the "LANDLORD REIMBURSEMENT FEE"). The Landlord
Reimbursement Fee shall be amortized over the initial term of the Lease at ten
percent (10%) interest per annum, and shall be paid in equal monthly
installments of $7,933.50 to Landlord as Additional Rent, during the initial
term of the Lease.
SURVIVAL OF OBLIGATIONS: Any obligation under this Section X of Tenant which
shall not have been paid at the expiration of the term of this Lease shall
survive such expiration and shall be paid when and as the amount of same shall
be determined to be due.
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SECTION XI. REMOVAL OF GOODS AND TENANT'S REPAIRS. At the expiration or
---------- -------------------------------------
sooner termination of this Lease, Tenant will remove its goods and effects
(except as elsewhere provided herein) and will peaceably yield up to the
Landlord the Premises in as good order and condition as when delivered to it, or
such improved order and condition as exists after the completion of Tenant's
Work, excepting ordinary wear and tear (which shall not be deemed to include
holes in walls or floors or special wiring caused by installation of Tenant's
fixtures or equipment), repairs required to be made by Landlord and damage by
fire, casualty or eminent domain.
The Tenant shall be responsible for all damages or injury to the Premises,
fixtures, appurtenances and equipment of Landlord, and to the Property, caused
by Tenant's installation or removal of furniture, fixtures or equipment.
SECTION XII. SALES TAX. In the event that any sales tax shall be levied by
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the Commonwealth of Massachusetts, or the Town of Chelmsford, or any other
authority having jurisdiction, upon the Rent and/or the Additional Rent received
by Landlord from Tenant, the exact amount of such tax shall be paid by Tenant to
Landlord at the same time each installment of Rent and/or Additional Rent is
paid to the Landlord.
SECTION XIII. IMPROVEMENTS AND ALTERATIONS. At the end of the term of this
------------ ----------------------------
Lease, Tenant shall remove its trade fixtures, equipment and other personal
property, and Tenant shall have the right, provided it notifies Landlord of its
intent to remove at the time of approval or notice as provided herein, but not
the obligation, to remove any of Tenant's Work, provided that Tenant repairs any
damage from such removal and returns the Premises to such condition as exists on
the Commencement Date, reasonable wear and tear and damage by fire, other
casualty and eminent domain excepted. In the case of damage or destruction of
such trade fixtures, equipment and other personal property and Tenant's Work
during the term of this Lease, Tenant shall have the right to recover its loss
from any insurance company with which it has insured the same, notwithstanding
that any of such things might be considered part of the Premises at the end of
the term. At the option of Landlord, which option Landlord may exercise only at
the time Landlord approves any Plans and Specifications for any Tenant's Work or
upon receipt of notice from Tenant for alterations and improvements which do not
require Landlord's approval, Tenant shall remove any or all of Tenant's Work and
alterations and improvements at the end of the term, but Landlord shall not
require Tenant to remove any of Tenant's Work completed in connection with the
initial preparation of each area of the Premises for Tenant's use and occupancy.
Landlord
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may not require removal of pipes, wires and the like from the walls, ceilings or
floors, provided that the Tenant properly cuts, caps and disconnects such pipes
and wires and seals them off in a safe and lawful manner flush with the
applicable wall, floor or ceiling and redecorates the area consistent with the
remainder of the Premises. Tenant shall be responsible for any damage to the
Premises caused by the malfunction of its equipment or the removal of its
property as aforesaid.
SECTION XIV. INSPECTION. Upon reasonable advance notice to Tenant (except in
----------- ----------
an emergency), Landlord and any mortgagee of the Premises or of the Premises and
Property, or of Landlord's interest therein, and their representatives shall
have the right at all times to enter the Premises to inspect the same and to
make repairs or replacements therein as required by this Lease; provided,
however, that the Landlord and such mortgagees and representatives shall use
reasonable efforts not to interfere materially with Tenant's use and occupancy
of the Property.
SECTION XV. CASUALTY. If the Premises or Property shall be damaged or
---------- --------
destroyed by fire or other casualty, Landlord shall, except as otherwise
provided herein, with reasonable diligence, restore the Premises or the Property
to its condition before such damage, but Landlord's obligation hereunder shall
be subject to zoning and building laws then applicable to the Premises.
Landlord's obligation hereunder shall be limited to the proceeds received by
Landlord (net of any amounts required to be paid to Landlord's mortgagee) under
the insurance policy covering the Premises (or which would have been received by
Landlord if Landlord had been carrying the insurance required under this Lease),
plus any funds voluntarily contributed by Tenant to cover any excess of the cost
of such restoration over the amount of such proceeds (with Tenant having no
obligation to pay any such excess), and Landlord shall not be obligated to
commence such restoration until such insurance proceeds (and voluntary
contribution from Tenant) are released to Landlord; provided, however, if
Landlord determines that such proceeds are likely to be insufficient to complete
such restoration, Landlord shall promptly give written notice of such
insufficiency to Tenant, and Tenant and Landlord shall have the right to
terminate this Lease by written notice to the other specifying the date, not
more than 60 days nor less than 30 days after the date of such notice from
Tenant to Landlord, on which such termination shall be effective, and this Lease
shall terminate on such specified date, as though such specified date were the
date of the ordinary expiration of the term of this Lease, unless, within ten
business days after receiving such notice from Tenant, Landlord commits in
writing to Tenant to pay such insufficiency from Landlord's own funds or within
ten business days after receiving such notice from Landlord, Tenant commits in
writing to Landlord to pay such insufficiency from Tenant's own funds. Tenant
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shall repair or restore with due diligence all trade fixtures, equipment and
other personal property installed by Tenant damaged or destroyed by such fire or
casualty.
Within 60 days after any damage to the Premises or the Property by fire or
other casualty, Landlord shall give written notice to Tenant of Landlord's
reasonable estimate of the time required to complete the restoration of the
Premises or the Property according to this Section XV (including any time needed
to collect proceeds of insurance from such damage). If the time to complete such
restoration exceeds 270 days, Tenant shall have the right to terminate this
Lease within 30 days after receiving such notice from Landlord. If the Premises
shall be damaged a result of a risk which is not required to be covered by
insurance under this Lease, or if the Premises shall be damaged or destroyed to
the extent of 25% or more of its reasonable replacement value in the last three
(3) years of the then current term of this Lease (unless Tenant shall exercises,
before or after to the date of such damage, any remaining option to extend the
term of this Lease), Landlord shall have the right to terminate this Lease
within 60 days after such damage occurs. If Landlord and Tenant do not so
terminate this Lease but Landlord fails to complete the restoration of the
Premises and the Property within 365 days after any such fire or other casualty,
Tenant shall have the right to terminate this Lease at any time before the
completion of such restoration. Landlord or Tenant shall exercise any right to
terminate this Lease under the provisions of this paragraph by written notice to
the other specifying a date, not less than 30 nor more than 60 days after the
date of such notice, when such termination shall be effective.
If the Premises or any part thereof shall be damaged or destroyed by fire or
other casualty (irrespective of whether or not Landlord shall be insured against
the perils causing such damage), and if as a result thereof Tenant suffers a
material, adverse effect on its use and enjoyment of the Premises, then a just
proportion of the Rent and Additional Rent reserved hereunder shall be suspended
or abated according to the extent to which Tenant may be reasonably required to
discontinue its business in the Premises until the work of restoration to be
done by Landlord as aforesaid shall be completed.
SECTION XVI. EMINENT DOMAIN. If the whole of the Premises or the Property
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shall be taken by condemnation or rights of eminent domain (the words
"condemnation" and "eminent domain" as used herein to include purchase in lieu
thereof; hereinafter collectively referred to as a "taking"), then the term
hereof shall cease as of the date of the vesting of title or as of the day
possession shall be taken thereunder, whichever is earlier. If twenty-five
percent (25%) or more of parking spaces on the Property or any portion of the
Premises shall be taken, and
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such taking materially impacts the ability of Tenant to operate in the Premises
Tenant shall have the right to terminate this Lease. If more than 25% of the
rentable area of the Premises is taken, Landlord shall be entitled to terminate
this Lease. Landlord or Tenant shall exercise any right to terminate this Lease
under the provisions of this paragraph by written notice to the other within 30
days after the date when such taking shall be effective, and any such
termination shall be effective as of such date.
If neither Landlord nor Tenant elect so to terminate this Lease, Landlord
shall with due diligence restore the Premises and/or the Property to an
architectural unit as nearly like its condition prior to such taking as shall be
practical, and all of the provisions hereof shall continue in effect, but, in
case there shall be a reduction of the floor area of the Premises by reason of
such taking, the Rent and Additional Rent shall be equitably abated to the
extent of the reduction of the floor area of the Premises from the time
possession shall be taken for the balance of the term of this Lease.
During the restoration work to be done by Landlord, if any, a just
proportion of the Rent and Additional Rent herein reserved shall be suspended or
abated according to the extent that Tenant may be reasonably required to
discontinue its business in the Premises until the work shall be completed. In
the event of restoration, Landlord's obligation to restore shall be to the
extent of the damages awarded for the taking and released to Landlord (net of
any amounts required to be paid to Landlord's mortgagee). Landlord's obligations
shall be subject to zoning and building laws then applicable to the Premises.
Tenant shall repair or restore all trade fixtures or equipment installed by
Tenant. All damages awarded for any taking, whether for the whole or a part of
the Premises or the balance of the Property, or otherwise, shall belong to and
be the property of Landlord whether such damages shall be awarded as
compensation for diminution in value to the leasehold or to any fee or
otherwise; provided, however, that Tenant shall be entitled to receive and
retain any amounts which may be specifically awarded to it by reason of the loss
of its trade fixtures, equipment, furniture or personal property and any
interruption of Tenant's business. Tenant shall have the right to prosecute any
claim for its relocation or moving expenses.
SECTION XVII. INDEMNIFICATION. Tenant shall indemnify and hold harmless
------------ ---------------
Landlord from and against any and all claims, liabilities or penalties asserted
by or on behalf of any person, firm or public authority, including without
limitation all costs and expenses (including reasonable attorney's fees)
incurred in or in connection with any such claim, or any action or proceeding
brought thereon, but only to the extent arising:
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(a) on account of or based upon any injury to person, or loss of or damage to
property, sustained or occurring on the Premises on account of or based upon the
act, omission, fault, or neglect (when Tenant's has a legal duty to act) of
Tenant, its servants, agents, employees, licensees, invitees and guests;
(b) on account of or based upon any injury to person or loss of or damage to
property, sustained or occurring elsewhere (other than on the Premises) in or
about the Premises (and, in particular, without limiting the generality of the
foregoing on or about the elevators, stairways, public corridors, sidewalks,
concourses, arcades, approaches, roof, parking areas, or other appurtenances and
facilities used in connection with the Premises) arising out of the use or
occupancy of the Premises or Property by the Tenant or its agents, employees,
contractors or invitees; and
(c) on account of or based upon (including monies due on account of) any
Tenant's Work during the term of this Lease and during the period of time, if
any, prior to the Commencement Date that Tenant may have been given access to
the Premises; provided, however, Tenant shall have no obligation to indemnify or
hold harmless Landlord from any such claim, liability or penalty to the extent
arising out of the negligence or willful misconduct of Landlord or its agents,
employees, contractors or invitees. In case any action or proceeding is brought
against Landlord by reason of any such claim against which Tenant is obligated
to indemnify Landlord under this Section XVII, Tenant, upon notice from
Landlord, shall, at Tenant's expense, resist or defend such action or proceeding
and employ counsel therefor reasonably satisfactory to Landlord, it being agreed
that such counsel as may act for insurance underwriters of Tenant engaged in
such defense shall be deemed satisfactory.
SECTION XVIII. PROPERTY OF TENANT. In addition to and not in limitation of
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other provisions of this Lease, Tenant covenants and agrees that all of its
merchandise, furniture and personal property of every kind, nature and
description which may be in or upon the Premises or Property, in the public
corridors, or on the sidewalks or approaches thereto, or in the parking areas,
during the term hereof, shall be at the sole risk and hazard of Tenant, and
that, if the whole or any part of such merchandise, furniture or personal
property shall be damaged, destroyed, stolen or removed by any cause whatsoever,
no part of said damage or loss shall be charged to or borne by Landlord. Tenant
shall, at Tenant's expense, obtain and keep in force "all risk" property
insurance covering Tenant against damage to or loss of any personal property,
trade fixtures and equipment of Tenant, and provide for waiver of subrogation by
Tenant's insurer against Landlord and coverage for the full replacement cost of
such property.
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SECTION XIX. INJURY AND DAMAGE. Landlord shall not be liable for any injury
----------- -----------------
or damage to property resulting from fire, explosion, falling plaster, steam,
gas, electricity, electrical disturbance, water, rain or snow, or leaks from any
part of the Premises or parking area, or from the pipes, appliances, or plumbing
works or from the roof, street or subsurface or from any other place or from
dampness or by any other cause of whatever nature, whether caused by other
tenants or persons in the Premises or on the Property or in any parking area or
caused by operations in construction of any private, public or quasi-public
work; nor shall Landlord be liable for such injury or damage to property
resulting from any latent defect in the Premises or on the Property.
SECTION XX. ASSIGNMENT, MORTGAGING, AND SUBLETTING. Tenant covenants and
---------- --------------------------------------
agrees that neither this Lease nor the term and estate hereby granted, nor any
interest herein or therein, will be assigned, mortgaged, pledged, encumbered or
otherwise transferred, and that neither the Premises, nor any part thereof will
be encumbered in any manner by reason of any act or omission (when Tenant has a
legal duty to act) on the part of Tenant, or occupied by anyone other than
Tenant, or for any use or purpose other than as permitted under this Lease, or
be sublet, without the prior written consent of Landlord in every case, which
consent Landlord shall not unreasonably withhold, delay or condition. Not in
limitation of the foregoing, Tenant's request for Landlord's consent to
subletting or assignment shall be submitted in writing no later than ten
business days in advance of the proposed effective date of such proposed
assignment or sublease, which request shall be accompanied by the following
information (such information shall be collectively referred to as the "REQUIRED
INFORMATION"): (i) the name, current address and business of the proposed
assignee or sublessee; (ii) the amount and location of the space within the
Premises proposed to be so subleased; (iii) the proposed effective date and
duration of the assignment or subletting; and (iv) the proposed rent and other
consideration to be paid to Tenant by such assignee or sublessee. Tenant also
shall promptly supply Landlord with financial statements and other information
as Landlord may request, prepared in accordance with generally accepted
accounting principles, not more than ninety (90) days old when delivered to
Landlord, indicating the net worth, liquidity and credit worthiness of the
proposed assignee or sublessee in order to evaluate the proposed assignment or
sublease. Tenant agrees to reimburse Landlord for legal fees and any other
reasonable expenses and costs, not to exceed $500 in any single instance,
incurred by Landlord in connection with any proposed assignment or subletting.
Landlord may grant its consent to any assignment or sublease subject to the
condition that any assignee or subtenant shall promptly execute, acknowledge,
and deliver to Landlord an agreement in form and substance satisfactory to
Landlord,
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whereby any such assignee shall agree to be bound by, and any such subtenant
shall agree that its sublease is subject and subordinate to, the covenants,
agreements, terms, provisions and conditions set forth in this Lease. If Tenant
shall sublet the Premises, having first obtained Landlord's consent, at a rent
in excess of the Rent and Additional Rent due and payable by Tenant under the
provisions of this Lease, such excess Rent and Additional Rent shall be divided
equally between Landlord and Tenant after deducting Tenant's reasonable expenses
of subletting, including commissions paid to brokers and reasonable attorney's
fees, and the amortized (on a straight-line basis over the term of this Lease)
of any Tenant's Work); it being agreed, however, that Landlord shall not be
responsible for any deficiency if Tenant shall sublet the Premises at a rent
less than that provided for herein. Further, it is agreed that in lieu of
withholding or granting its consent Landlord may, within ten business days of
receipt of a request from Tenant for consent to a proposed assignment or
sublease of the entire Premises, terminate this Lease. If Landlord shall elect
to terminate this Lease, it shall give Tenant written notice of its election,
which notice shall set forth a date, not less than sixty (60) or more than one
hundred twenty (120) days from the receipt by Landlord of such request from
Tenant, on which such termination shall be effective, and on such date Tenant
shall surrender the Premises in accordance with the provisions of this Lease
relating to the surrender of the Premises as the expiration of the term of this
Lease. The listing of any name other than that of Tenant, whether on the doors
of the Premises or on the directory, or otherwise, shall not operate to vest any
right or interest in this Lease or in the Premises or be deemed to be the
written consent of Landlord mentioned in this Section XX.
Any contrary or inconsistent provision of this Lease notwithstanding,
Tenant will have the right, without Landlord's prior consent and without any
right of Landlord to terminate this Lease, to assign this Lease or sublet all or
any portion of the Premises to any person or business organization controlling,
controlled by, or under common control with Tenant or in connection with a
merger or consolidation of or into Tenant or the sale of all or substantially
all of Tenant's assets.
If this Lease is assigned, or if the Premises or any part thereof is sublet
or occupied by anybody other than Tenant, Landlord may, after an Event of
Default, collect Rent and/or Additional Rent from the assignee, subtenant or
occupant, and apply the net amount collected to the Rent herein reserved, but no
such assignment, subletting, occupancy or collection shall be deemed a waiver of
this covenant, or the acceptance of the assignee, subtenant or occupant as a
tenant, or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. The consent by Landlord to an
assignment or subletting shall not in any way be construed to relieve Tenant
from obtaining the express consent in writing of Landlord to any further
assignment or subletting. No
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assignment, subletting or use of the Premises by an affiliate of Tenant shall
affect the purpose for which the Premises may be used stated in Section II.
Notwithstanding any permitted assignment or subletting, Tenant shall at all
times remain directly, primarily and fully responsible and liable for the
payment of all sums payable under the Lease and for compliance with all the
obligations of Tenant under the Lease.
SECTION XXI. SIGNS. No signs may be put on or in any window by Tenant. Any
----------- -----
signs or letters in the public corridors or on the doors or exterior of the
Premises must be submitted to Landlord for written approval before installation,
which approval shall not be unreasonably withheld, and which installation shall
be at the sole expense of Tenant.
SECTION XXII. INSURANCE COMPLIANCE. Tenant will not do anything in, upon or
------------ --------------------
about the Premises which may prevent the obtaining of any fire, liability or
other insurance upon, or written in connection with, the Premises or the
Property or which may make any such insurance void or voidable (provided such
insurance shall not contain conditions or restrictions materially restricting or
interfering with Tenant's use of the Premises for the purposes permitted under
this Lease), or which may create any extra premiums or increase the rate of any
such insurance over that normally applicable to office buildings unless the
Tenant pays such extra or increased premiums.
SECTION XXIII. INFLAMMABLES, ODORS. Tenant shall not bring or permit to be
------------- -------------------
brought or kept in or on the Premises, any inflammable, combustible or explosive
fluids, material, chemical or substance (other than office supplies, cleaning
substances used in the ordinary course of cleaning and maintenance, and other
substances used in the ordinary course of Tenant's business, but in compliance
with all applicable laws), or cause or permit any odors of cooking or other
processes or any unusual or other objectionable odors to emanate from the
Premises.
SECTION XXIV. DEFAULT. Any one of the following events shall be deemed to
------------ -------
be an "EVENT OF DEFAULT":
(a) Failure on the part of Tenant to pay Rent, Additional Rent or other
charges for which provision is made herein on or before the date on which the
same become due and payable and such failure continues for five (5) days (the
"monetary notice and cure period") after Landlord has sent to Tenant notice of
such failure. However, if (i) Landlord shall deliver to Tenant two such notices
within any twelve-month period, even though Tenant's failure specified in such
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notices shall have been cured and this Lease not terminated; and (ii) during the
twelve-month period next following the date on which the second such notice was
delivered by Landlord to Tenant, Tenant thereafter shall fail to pay any Rent,
Additional Rent or other charges when due, such failure shall automatically be
deemed to be an Event of Default upon Landlord giving Tenant written notice
thereof, and there shall be no monetary notice and cure period.
(b) Failure on the part of Tenant to comply with (i) the insurance
requirements hereunder and failure of Tenant to cure same within ten (10) days
following notice from Landlord (the "insurance notice and cure period") or (ii)
failure on the part of Tenant to comply with any other obligation of Tenant of
this Lease and failure of Tenant to cure such failure within 30 days following
notice from Landlord to Tenant of the nature of such failure or, if Tenant
cannot reasonably cure such failure within such 30-day period, such additional
time as is necessary to cure such failure with diligence and continuity (the
"non-monetary notice and cure period"). Notwithstanding the insurance notice and
cure period and the non-monetary notice and cure period provided in the
preceding sentence, Tenant shall be obligated to commence the cure of such
failure promptly and use best efforts to complete such cure as soon as possible.
(c) The commencement of any of the following proceedings: (i) the estate
hereby created being taken on execution or by other process of law; (ii) Tenant
being judicially declared bankrupt or insolvent according to law; (iii) an
assignment being made of the property of Tenant for the benefit of creditors;
(iv) a receiver, guardian, conservator, trustee in involuntary bankruptcy or
other similar officer being appointed to take charge of all or any substantial
part of Tenant's property by a court of competent jurisdiction, and such
appointment not being dismissed within 60 days after Tenant receives notice of
such appointment; or (v) a petition being filed for the reorganization of Tenant
under any provisions of the Bankruptcy Act now or hereafter enacted, and such
petition not being dismissed within 60 days after Tenant receives notice of such
petition.
(d) Tenant filing a petition for reorganization or for rearrangement under
any provisions of the United States Bankruptcy Code now or hereafter enacted,
and providing a plan for a debtor to settle, satisfy or to extend the time for
the payment of debts.
If an Event of Default shall occur, then in addition to any other remedy
Landlord may have at law or equity, Landlord may (i) apply the Security Deposit,
if any, specified in Section XLIII toward any costs and expenses incurred by
Landlord in connection with such Event of Default without waiving any of
Landlord's other rights hereunder, (ii) cure Tenant's Event of Default at
Tenant's cost and expense, and/or (iii) lawfully enter the Premises or any part
thereof and repossess the same
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as the former estate of the Landlord and expel the Tenant and those claiming
under the Tenant without being deemed guilty of any manner of trespass.
Tenant covenants that it will indemnify the Landlord against all losses
Landlord may incur by reason of any Event of Default. If Landlord terminates
this Lease due to an Event of Default, Tenant shall continue to remain liable
for the full and prompt payment and performance of all of Tenant's obligations
under this Lease from the date of such termination until Landlord relets the
Premises as provided herein; provided, however, Landlord shall have the right at
any time after such termination, to collect from Tenant, and Tenant shall pay to
Landlord, as liquidated damages, the sum of (1) all Rent, Additional Rent and
other charges due and payable by Tenant to Landlord under this Lease through the
date of judgment the amount of such liquidated damages, (2) the excess of (i)
all Rent, Additional Rent and other charges due pursuant to the Lease from the
date of judgment through the normal expiration of the term of this Lease (had
the Lease not been terminated in accordance herewith), including increases in
Taxes and Operating Costs projected reasonably on the basis of experience under
the Lease, over (ii) the fair market rental value of the Premises, including
base rent, additional rent (including Taxes and Operating Costs) and other
charges payable by prospective tenants of comparable buildings in the Chelmsford
area, which excess shall be reduced to a present value at a discount rate of
eight percent, and (3) all costs Landlord may incur in obtaining possession of
the Premises or in reletting the Premises (including without limitation
reasonable attorneys fees, brokerage commissions, and improvements, alterations
and decorations necessary to prepare the Premises for the use and occupancy by a
prospective tenant, but only to the extent such costs are not reimbursed to
Landlord through the rent, additional rent and other charges payable by such
prospective tenant).
Landlord shall use reasonable efforts to relet the Premises, on such terms
and conditions as Landlord in its reasonable discretion may determine (including
a term different from the term of the Lease, rental concessions, and alterations
to, and improvement of, the Premises), and otherwise to mitigate its damages
arising out of any Event of Default or termination of this Lease. However,
Landlord shall not be obligated to relet the Premises at below market rates.
Landlord shall not be liable for, nor shall Tenant's obligations hereunder be
diminished because of, Landlord's failure to relet the Premises or to collect
rent due for such reletting, provided that Landlord exercises reasonable efforts
to relet the Premises and collect such rent. In the event of reletting, Landlord
shall have no liability to account to Tenant for any excess in proceeds received
from such reletting.
SECTION XXV. SUBORDINATION AND ESTOPPEL. Provided that Tenant receives a
----------- --------------------------
Non-Disturbance Agreement (as hereinafter defined) from the holder of
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any mortgage and the lessor under any ground lease or superior lease encumbering
any interest in this Lease, the Premises or the Property, this Lease shall
subordinate in all respects to all such mortgages which may now or hereafter be
placed on or affect the real property of which the Premises are a part, or
Landlord's interest or estate therein, and to each advance made and/or hereafter
to be made under any such mortgages, and to all renewals, modifications,
consolidations, replacements and extensions thereof and all substitutions
therefor, on the terms and conditions of such Non-Disturbance Agreement. Within
ten business days after the date of the execution of this Lease, Landlord shall
deliver to Tenant an agreement (a "NON-DISTURBANCE AGREEMENT"), in recordable
form, from the holder of any such mortgage and/or the lessor under any such
ground lease encumbering this Lease, the Premises or the Property as of the date
of this Lease, which agreement shall provide that, in the event of that such
holder or lessor (or their successor or assignees, including any purchaser at a
foreclosure sale or the grantee under any deed in lieu of foreclosure) succeeds
to Landlord's title to the Premises or Property or interest under this Lease,
such holder or lessor shall recognize Tenant's rights, not disturb Tenant's
occupancy, and assume Landlord's obligations, under this Lease. Notwithstanding
the generality of the foregoing provisions of this Section XXV, Tenant agrees
that any such mortgagee shall have the right at any time to subordinate any such
mortgages or other instruments of security to this Lease. Tenant further
covenants and agrees that, in the event of that such holder or lessor (or such
successor or assignees) succeeds to Landlord's title to the Premises or Property
or interest under this Lease, Tenant shall attorn to such mortgagee or lessor or
such purchaser, on the terms and conditions of the Non-Disturbance Agreement.
Tenant shall, from time to time, within ten (10) business days after
receiving a written request from Landlord, execute, acknowledge and deliver an
estoppel certificate ("ESTOPPEL CERTIFICATE") certifying, to the extent true and
to the best of Tenant's knowledge, that this Lease is in full force and effect
and unmodified (or, if there have been modifications, that the same is in full
force and effect as modified and stating the modifications); that the term has
commenced, the full amount of the Rent and Additional Rent then accruing
thereunder, and the dates to which the Rent has been paid; that Tenant has
accepted possession of the Premises and that any improvements required by the
terms of this Lease to be made by Landlord have been completed to the
satisfaction of Tenant; the amount, if any, that Tenant has paid to Landlord as
a security deposit; that no Rent under this Lease has been paid more than thirty
(30) days in advance of its due date; that the address for notices to be sent to
Tenant is as set forth in this Lease (or has been changed by notice duly given
and is as set forth in the Estoppel Certificate); that Tenant, as of the date of
such Estoppel Certificate, has no charge, lien, or claim of offset under this
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Lease or otherwise against Rent or Additional Rent due or to become due
hereunder; that, to the knowledge of Tenant, Landlord is not then in default
under this Lease; and such other facts as may be reasonably requested by
Landlord or any mortgagee of Landlord and are not ascertainable from the express
terms of the Lease. Any Estoppel Certificate may be relied upon by Landlord, any
successor of Landlord, any mortgagees of Landlord or any prospective purchaser
of the Building.
SECTION XXVI. NOTICES. Any notice, request, demand or other communication by
------------ -------
Tenant to Landlord shall be served by receipted hand delivery, by certified
mail, postage prepaid, or by recognized overnight courier, addressed to Landlord
as set forth below, and any notice, request, demand or other communication by
Landlord to Tenant shall be served by a recognized overnight courier, addressed
to Tenant as set forth below.
To Landlord: New Boston Mill Road Limited Partnership
One Longfellow Place, Suite 3612
Boston, Massachusetts 02114
with a copy to: Rappaport, Aserkoff & Rappaport
One Longfellow Place, Suite 3611
Boston, Massachusetts 02114
To Tenant: Sycamore Networks, Inc.
220 Mill Road
Chelmsford, Massachusetts
Attention:
with a copy to: Testa, Hurwitz & Thibeault, LLP
125 High Street
Boston, Massachusetts 02110
Attention: Real Estate Department
Landlord and Tenant may each change their addresses by providing notice of such
change to the other in the manner specified in this Section XXVI.
SECTION XXVII. INTENTIONALLY DELETED.
-------------
SECTION XXVIII. QUIET ENJOYMENT. The Tenant, on paying the said Rent and
-------------- ---------------
Additional Rent and performing the covenants of this Lease on its part to be
performed, shall and may peaceably and quietly have, hold and enjoy the Premises
in accordance with this Lease for the term aforesaid and any extension thereof,
free from disturbance by Landlord or anyone claiming by, through or under
Landlord.
SECTION XXIX. BINDING AGREEMENT. This Lease shall bind and inure to the
------------ -----------------
benefit of the parties hereto and their respective heirs, representatives,
successors and assigns. This Lease contains the entire agreement of the parties
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and may not be modified except by instrument in writing signed by the parties
hereto.
SECTION XXX. PARTNERSHIP. During such time as the Landlord shall be a limited
----------- -----------
partnership, Tenant agrees that it shall not hold any partner of Landlord
personally liable for the payment of any monetary obligation to Tenant under
this Lease, and in the event it has a claim against Landlord, Tenant shall look
only to the fee simple title and interest in the Property for recovery of any
judgment from Landlord; it being specifically agreed that neither the Landlord
nor anyone claiming by, through or under Landlord shall ever be personally
liable for any such judgment, or for the payment of any monetary obligation to
Tenant; provided, however, this Section XXX shall not restrict or prevent Tenant
from enforcing any rights or remedies other than monetary judgments, at law or
in equity, including without limitation specific performance and injunctive
relief, against any Landlord or any such partner or anyone claiming by, through
or under Landlord.
SECTION XXXI. SEISIN. In the event of a sale or other disposition of the
------------ ------
Property by Landlord, Landlord shall be entirely free and relieved from the
performance and observance thereafter of all covenants and obligations of
Landlord hereunder, it being understood and agreed that the successor to
Landlord's ownership of the Property shall thereupon and thereafter be deemed to
have assumed, and shall perform and observe, any and all of such covenants and
obligations of Landlord under this Lease.
SECTION XXXII. INSURANCE.
------------- ---------
(a) Tenant shall maintain in full force and effect the following insurance
written by one or more responsible companies licensed to do business in the
state in which the Premises is located in form and content reasonably
satisfactory to Landlord, including, except as to clause (2) of this Section
XXXII(a), at the request of Landlord, Landlord and Landlord's managing agent,
New Boston Management Services, Inc. as additional insureds, and Tenant shall
keep deposited with the Landlord certificates of all policies of insurance
required under this Lease, with endorsements on such certificates to the effect
that such insurance shall not be cancelled by the insurer without at least
fifteen (15) days prior notice to Landlord.
(1) Commercial General Liability insurance in the broadest form of such
coverage as is available from time to time in the jurisdiction in which the
Premises is located, applying to the use and occupancy of the Premises and the
business operated by Tenant and on an occurrence basis in an amount not less
than Three Million Dollars ($3,000,000) combined single limit for property
damage
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and for any personal injury, including death, to one or more than one
person arising out of any one incident.
(2) Worker's compensation insurance in the minimum amount required by
statute covering all employees, and, if Tenant shall contract with any
independent contractor for the furnishing of labor, materials or services to
Tenant, Tenant shall require such independent contractor to maintain worker's
compensation insurance covering all its employees and all the employees of any
subcontractor.
(3) Personal Property - Landlord shall not be liable to Tenant for and
Tenant shall carry extended coverage property damage insurance covering Tenant's
personal property located at the Premises (including furniture, trade fixtures
and equipment on a replacement cost basis), if any, including:
(i) Loss of property through thefts regardless of where the theft
takes place; and
(ii) Damage to property regardless of where the damage takes place;
(iii) Damage to or loss of property caused by visitors to or in
the Building.
It is specifically understood that Landlord's insurance does not cover any
personal property of Tenant, and Tenant shall not make any claim for loss of or
damage to such property against Landlord or Landlord's insurance carrier and
shall not permit its insurance carrier to make any claim for loss or damage to
such property against Landlord or Landlord's insurance carrier.
(b) Landlord's Insurance. Landlord shall maintain in full force and effect
the following insurance written by one or more responsible companies licensed to
do business in Massachusetts, naming Tenant as an additional insured as its
interest may appear under the Lease. The costs of such insurance shall be
reimbursed by Tenant to Landlord as an Operating Cost pursuant to Section X:
1. Fire and extended coverage insurance in an amount equal to one
hundred percent (100%) of the replacement cost of the Premises and the Common
Facilities, as such cost may be determined from time to time.
2. Commercial General Liability insurance in the broadest form of such
coverage as is available from time to time in the jurisdiction in which the
Premises is located, on an occurrence basis in an amount not less than Three
Million Dollars ($3,000,000) combined single limit for property damage and for
any personal injury, including death, to one or more than one person arising out
of any one incident, or such greater commercially reasonable amount as may be
recommended by Landlord's insurance advisor or required by Landlord's mortgagee.
3. Worker's compensation insurance covering all employees, and, if
Landlord shall contract with any independent contractor for the furnishing of
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labor, materials or services to Landlord, Landlord shall require such
independent contractor to maintain Worker's compensation insurance covering all
its employees and all the employees of any subcontractor.
4. Rental interruption insurance.
SECTION XXXIII. SUBROGATION, INSURANCE PREMIUMS. Landlord and Tenant hereby
-------------- -------------------------------
waive any rights each may have against the other in connection with any of the
damage occasioned to Landlord or Tenant, as the case may be, their respective
property, the Building or its contents, arising from covered causes of loss for
which property insurance is carried or required to be carried pursuant to this
Lease. Each party on behalf of their respective insurance companies insuring
their respective property against any such loss, shall waive any right of
subrogation that it may have against the other party.
SECTION XXXIV. SHORING. If an excavation shall be made upon the Property or
------------- -------
upon land adjacent to the Property, or shall be authorized to be made, Tenant
shall, upon reasonable advance written notice, afford to the person causing or
authorized to cause such excavation, license to enter upon the Premises for the
purpose of doing such work as said person shall deem necessary to preserve the
Building from injury or damage and to support the same by proper foundations
without any claims by Tenant for damages or indemnity against Landlord, or
diminution or abatement of rent, provided that such entry and work do not
materially interfere with Tenant's use and enjoyment of the Premises.
SECTION XXXV. REZONING. Tenant agrees that it shall not oppose any
------------ --------
application for rezoning or variance instituted by Landlord, its successors or
assigns which does not materially impact Tenant's use and enjoyment of the
Premises or its operations therein.
SECTION XXXVI. SEPARABILITY. If any provision or any part of any provision of
------------- ------------
this Lease, or if the application of any provision or any part of any provision
of this Lease to any person, entity, or circumstance shall be held invalid by a
court of competent jurisdiction, such invalidity shall have no effect on any
other provision or any part of any other provision of this Lease or its
application to any other person, entity, or circumstance.
SECTION XXXVII. WAIVER OF TRIAL BY JURY. INTENTIONALLY DELETED.
-------------- -----------------------
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SECTION XXXVIII. NO WAIVER. No act or thing done by Landlord or Landlord's
--------------- ---------
agents during the term of this Lease shall be deemed an acceptance of a
surrender of the Premises, and no agreement to accept such surrender shall be
valid unless in writing signed by Landlord. The failure of Landlord to seek
redress for violation of, or to insist upon the strict performance of this
Lease, shall not constitute a waiver in any respect nor prevent a subsequent
act, which originally constituted a violation, from having all force and effect
of an original violation. The receipt by Landlord of Rent or Additional Rent
with knowledge of the breach of any provision of this Lease shall not be deemed
a waiver of such breach. No payment by Tenant or receipt by Landlord of a lesser
amount than the monthly Rent or Additional Rent herein stipulated shall be
deemed to be other than on account, nor shall any endorsement or statement on
any check, nor any letter accompanying any check or payment as Rent or
Additional Rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such Rent or Additional Rent or pursue any other remedy in this Lease
provided.
SECTION XXXIX. HOLDING OVER. In the event Tenant or any party claiming by,
------------- ------------
through or under Tenant shall hold over the Premises or any part thereof after
the termination of this Lease, such holding over shall constitute and be
construed as a tenancy at sufferance only, provided that all the terms of this
Lease shall apply except that the Rent set forth in Section IV shall be
calculated at a daily rate equal to one hundred-fifty percent (150%) of the
daily Rent reserved in said Section IV. Nothing contained in this Section XXXIX
shall be construed as Landlord's consent to Tenant holding over.
SECTION XL. CAPTIONS, PLURAL, GENDER. The captions are inserted only as a
---------- ------------------------
matter of convenience and for reference and in no way define, limit or describe
the scope of this Lease nor the intent of any provisions hereof. Whenever a
masculine or singular pronoun is used in this Lease, it shall include the
feminine and plural thereof whenever the context so permits or requires.
SECTION XLI. BROKERAGE. Tenant covenants that it has dealt with no broker
----------- ---------
other than the broker specified at the end of this Section XLI, as Tenant's
Broker and as Landlord's Broker, in locating the Premises demised by this Lease
and in negotiating this Lease and Tenant further covenants and agrees that it
shall hold Landlord harmless from any and all claims which may be asserted by
any real estate broker other than the broker specified at the end of this
Section XLI, as Tenant's Broker and as Landlord's Broker, who claims that it
showed or referred
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the Tenant to the Landlord or to the Premises for any transaction involving or
resulting in this Lease or the Premises.
Landlord covenants that it has dealt with no broker other than the broker
specified at the end of this Section XLI, as Tenant's Broker and as Landlord's
Broker, in negotiating this Lease and Landlord further covenants and agrees that
it shall hold Tenant harmless from any and all claims which may be asserted by
any real estate broker other than the broker specified at the end of this
Section XLI, as Tenant's Broker and as Landlord's Broker, who claims that it
showed or referred the Tenant to the Landlord or to the Premises for any
transaction involving or resulting in this Lease or Premises demised hereby.
Landlord shall be responsible for the payment of commissions to the brokers
listed herein under separate agreement.
Tenant's Broker: Boston Real Estate Partners
Landlord's Broker: None
Except as may be provided in separate agreement between Landlord and
Tenant's Broker, Landlord shall not be responsible for the payment of any fee or
commission to any broker or other third party, including any broker identified
herein, who is retained by Tenant in connection with any such renewal,
extension, and/or expansion of this Lease.
SECTION XLII. HAZARDOUS WASTE.
------------ ---------------
(a) For the purpose of this Section XLII - "Hazardous Substance" shall mean
any waste, substance or other material which may be dangerous to health or
environment, including, without limitation, all "hazardous wastes", "hazardous
materials", "hazardous substance", "toxic substance", "oil", "infectious medical
waste" and "hazardous medical waste" as defined in any federal, state, or local
law, regulation or ordinance, or otherwise, including without limitation any
wastes, substances or materials regulated under the Resource Conservation and
Recovery Act of 1976, as amended, (42 U.S.C. Section 6901, et. seq. "RCRA") the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 as
amended (42 U.S.C. 9601 et. seq. "CERCLA"), and the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), Public Law 99-499, 100 Stat 1613, et seq.
-- ---
(b) Tenant shall not dump, flush or in any way introduce any Hazardous
Substances into the sewerage, drainage or other waste disposal system serving
the Premises or the Property, other than office supplies, cleaning substances
used in the ordinary course of cleaning and maintenance, and other substances
used in the ordinary course of Tenant's business ("PERMITTED SUBSTANCES"), which
Tenant shall dispose of in accordance with all applicable laws.
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(c) Tenant shall not generate, use, store or dispose of Hazardous Substances
regulated under RCRA, CERCLA, SARA and/or any other applicable municipal,
federal or state environmental law, in or on the Premises or the Property, nor
transport Hazardous Substances from the Premises or the Property, except in
compliance with RCRA, CERCLA, SARA, and any other applicable municipal, federal
or state environmental law.
(d) Tenant shall promptly notify Landlord in writing of any incident in the
Premises or the Property which might require the filing of a notice under any
statute described in Section XLII(a) of this Lease.
(e) Tenant shall indemnify and hold Landlord harmless from any and all costs,
liabilities, demands, claims, civil or criminal actions, causes of action, civil
or criminal penalties, fines, losses, liens, assessments, damages, liabilities,
costs, disbursements, expenses or fees of any kind or any nature (including
without limitation all clean-up costs and attorney's fees) which may at any time
be imposed upon, incurred by or asserted or awarded against Landlord arising out
of or on account of Tenant's failure to comply with the provisions of Section
XLII of this Lease, whether due to any action or non-action of Tenant (when
Tenant has a legal duty to act).
(f) Except as disclosed in reports by Rizzo Associates, Inc. dated June 25,
1997 and updated May 26, 1999, Landlord represents and warrants to the best of
its knowledge that there are no Hazardous Substances on or about the Property.
Landlord shall indemnify and hold harmless Tenant from any and all costs,
liabilities, demands, claims, civil or criminal actions, causes of action, civil
or criminal penalties, fines, losses, liens, assessments, damages, liabilities,
costs, disbursements, expenses or fees of any kind or any nature (including
without limitation all clean-up costs and attorney's fees) which may at any time
be imposed upon, incurred by or asserted or awarded against Tenant arising from
any Hazardous Materials present on the Property as of the date of this Lease or
introduced to the Premises after such date as a result of the negligence or
willful misconduct of Landlord or its agents, employees or contractors.
SECTION XLIII. SECURITY DEPOSIT. Simultaneously with the execution and
------------- ----------------
delivery of this Lease to Landlord, Tenant shall deposit with Landlord a letter
of credit in the sum of $477,888 (the "LETTER OF CREDIT") to be held and, in
accordance with this Section XLIII, presented, drawn upon and the proceeds
thereof retained and applied by Landlord, as security for the faithful payment,
performance and observance by Tenant of the covenants and agreements of Tenant
under and pursuant to this Lease. It is agreed and understood that in the event
of the occurrence of an Event of Default of Tenant, Landlord may present for
payment and draw upon the Letter of Credit, and Landlord may use, apply or
retain,
29
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the whole or any part of the amounts available to be drawn under the Letter of
Credit to the extent required for the payment of any Rent or Additional Rent or
any other sum which Landlord may expend or be entitled to the payment of by
reason of any Event of Default of Tenant or any failure of Tenant to pay,
perform or observe any term, covenant, condition or provision of this Lease,
including without limitation, any late charges, interest payments or any damages
or deficiency in the re-letting of the Premises whether said damages or
deficiency occurred before or after summary proceedings or other re-entry by
Landlord.
If Landlord shall present, draw upon and apply or retain all or any portion
of the amounts evidenced by the Letter of Credit, Tenant shall immediately
replenish and reinstate the amount available to be drawn under the Letter of
Credit or cause a substitute Letter of Credit in the form and amount required by
this Lease to be re-issued so that at all times during the Term of this Lease,
Landlord shall be entitled to draw upon the entire dollar amount of the Letter
of Credit in the amounts required hereunder, notwithstanding any prior
presentation and draw thereon.
The Letter of Credit must at all times be an irrevocable commercial letter
of credit in the amount required by this Lease and payable through a bank,
acceptable to Landlord in Landlord's reasonable discretion. In addition, the
Letter of Credit shall be payable solely to the benefit of the Landlord from
time to time under this Lease and shall be automatically renewable and, upon the
direction of Landlord, transferable to and payable for the benefit of any
successor Landlord under the Lease. Tenant shall maintain the Letter of Credit
in effect for the time period beginning on the date of this Lease through and
including the date which is the last to occur of (i) the date which is 60 days
after the last day of the term of this Lease or (ii) the date which is 60 days
after the date of surrender delivery of the entire Premises to Landlord in
accordance with the terms and provisions of this Lease. Tenant shall bear all
costs and expenses in connection with procuring the Letter of Credit and
maintaining it in full force and effect for the time periods required hereunder.
In the event of a sale or other transfer of the Property, Tenant shall, at its
sole cost and expense, cause the Letter of Credit, in the form required
hereunder, to be issued to and for the benefit of such transferee or purchaser
of the Property.
The Landlord, from time to time under this Lease, shall be entitled to
receive 60 days of prior written notice of any cancellation of the Letter of
Credit for any reason, and the Letter of Credit shall not be cancelable unless
and until 60 days after Landlord shall have received such written notice. Upon
(i) receiving notice of cancellation of the Letter of Credit or (ii) failure of
Tenant to deliver to Landlord a substitute Letter of Credit on or before the
date which is 30 days prior any renewal date, and whether or not Tenant shall
then be in default in the payment, performance or observance of any term,
covenant or provision of this Lease,
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Landlord shall be entitled to present and draw upon the entire amount of the
Letter of Credit, and, upon so doing, Landlord shall be entitled to hold the
proceeds of such payment as if it were a cash security deposit under this Lease
to be applied against costs arising from Events of Default of Tenant from time
to time arising under this Lease.
At any time during the term of this Lease, Tenant shall have the right to
convert the Letter of Credit into a cash security deposit by tendering to
Landlord a sum equal to the face amount of the Letter of Credit required to be
maintained by Tenant under this Lease at that time. If Tenant tenders such sum,
in immediately available funds, or a replacement of the Letter of Credit for any
proper purpose under this Section XLIII, Landlord shall promptly cooperate with
Tenant to exchange such sum or such replacement, as the case may be, for the
Letter of Credit in Landlord's possession. Landlord shall deposit any such sum
tendered by Tenant in a separate, segregated, interest-bearing money-market
account identified as holding Tenant's funds and shall pay all interest accruing
on such account to Tenant at least once annually.
In the event of the occurrence of an Event of Default of Tenant, Landlord
may use, apply or retain, the whole or any part of any cash security deposit
held by Landlord under this Section XLIII to the extent required for the payment
of any Rent or Additional Rent or any other sum which Landlord may expend or be
entitled to the payment of by reason of any Event of Default of Tenant or any
failure of Tenant to pay, perform or observe any term, covenant, condition or
provision of this Lease, including without limitation, any late charges,
interest payments or any damages or deficiency in the re-letting of the Premises
whether said damages or deficiency occurred before or after summary proceedings
or other re-entry by Landlord. In the event that Landlord shall so apply all or
any portion of the said security deposit, Tenant shall immediately upon notice,
restore the same to its full amount. All or any portion of the security deposit
remaining at the expiration or other termination of this Lease which has not
been so applied shall be returned to Tenant.
Provided, as of each anniversary of the Commencement Date, Tenant's
tangible net worth is not less than $50 million and there is no Event of Default
under the Lease beyond any applicable notice and cure period, Tenant shall have
the right to a reduction in the amount of the Letter of Credit, by an amendment
to or replacement of the Letter of Credit then outstanding, or any such cash
security deposit, by a payment from Landlord to Tenant, equal to twenty-five
percent (25%) of the face amount of the original Letter of Credit.
SECTION XLIV. LANDLORD'S RIGHT TO PERFORM FOR TENANT. Landlord shall have the
------------ --------------------------------------
right, but shall not be required, to pay such sums and do any act, whether the
same requires the expenditures of monies or not, which may
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be necessary or appropriate by reason of an Event of Default, and, in the event
of the exercise of such right by the Landlord, the Tenant agrees to pay to the
Landlord forthwith upon demand the cost of making such payments or performing
such actions, plus interest at one and one-half percent (1 1/2%) per month of
such cost and if Tenant shall default in such payment, the Landlord shall have
the same rights and remedies as Landlord has hereunder for the failure of the
Tenant to pay the Rent or Additional Rent. Landlord may exercise the foregoing
rights without waiving any other of its rights or releasing Tenant from any of
its obligations under this Lease, and the exercise of these rights shall not be
deemed an obligation of Landlord to perform such right in the future.
SECTION XLV. GOVERNING LAW. This Lease shall be governed by the provisions
----------- -------------
hereof and by the laws of the state in which the Premises are located.
SECTION XLVI. THERMEDICS TERMINATION. Landlord and Tenant acknowledge that
------------ ----------------------
all of the Premises is presently under lease to Thermedics Detection Inc.
("THERMEDICS") by virtue of an Agreement of Lease dated December 13, 1996 (the
"THERMEDICS LEASE") between Thermedics and MBL Life Assurance Corporation,
Landlord's predecessor-in-interest, and Landlord does not currently have
possession of the Premises. It is a condition to the respective obligations of
Landlord and Tenant under this Lease that (a) Landlord and Thermedics shall have
entered into a Lease Termination Agreement, in the form attached to this Lease
as Exhibit B (the "TERMINATION AGREEMENT") and a Notice of Termination of Lease
in the form attached to this Lease as Exhibit C (the "TERMINATION NOTICE"),
providing for termination of the Thermedics Lease and vacation of the Premises
by Thermedics and all tenants and occupants of the Premises other than the
subtenants under the Permitted Subleases on or before May 31, 2000, (b)
Landlord, Tenant and Rappaport, Aserkoff and Rappaport (the "ESCROW AGENT")
shall have entered into an agreement for the escrow of the Thermedics
Termination Fee (as hereinafter defined), in the form attached to this Lease as
Exhibit D (the "ESCROW AGREEMENT"), (c) Thermedics shall have executed and
delivered to Escrow Agent an assignment to Tenant of the Thermedics' rights,
title and interests as the sublandlord under the Permitted Subleases, in the
form attached to this Lease as Exhibit E (the "ASSIGNMENT OF SUBLEASES"), and
(d) the subtenants under the Permitted Subleases shall have executed and
delivered to Tenant the Estoppel Certificates in the forms attached to this
Lease as Exhibit F (the "ESTOPPEL CERTIFICATES"). On or before March 7, 2000,
Tenant shall pay to the Escrow Agent, in escrow, under the terms and conditions
of the Escrow Agreement, the sum of $950,000 (the "THERMEDICS TERMINATION FEE").
If on or before March 9, 2000 Tenant does not receive (1) copies of the
Termination Agreement and Termination Notice, executed by Landlord and
Thermedics, (2) an original counterpart of the Escrow Agreement, executed by
Landlord, Tenant and the Escrow Agent, (3) a
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copy of the Assignment of Subleases executed by Thermedics, and (4) the original
Estoppel Certificates executed by the subtenants under the Permitted Subleases
or, if on or before March 7, 2000 Escrow Agent has not received the Termination
Fee, Landlord and Tenant shall each have the right to terminate this Lease by
written notice to the other, in which event this Lease shall terminate ten days
after receipt of such notice unless Tenant receives the documents specified in
the preceding sentence and Landlord receives the Termination Fee before the end
of such ten-day period. If Thermedics or Landlord exercises any right in the
Termination Agreement to terminate the Termination Agreement, Landlord shall
have the right to terminate this Lease by written notice to Tenant, in which
event this Lease shall terminate immediately upon receipt of such notice by
Tenant. In the event of any such termination, the Escrow Agent shall promptly
return the Thermedics Termination Fee to Tenant, and this Lease shall terminate
without any further liability or obligation of either Landlord or Tenant to the
other party. Upon the occurrence of the Commencement Date, Escrow Agent shall
have the authority, under the Escrow Agreement, to pay the Thermedics
Termination Fee to Thermedics for expenses incurred in the termination of the
Thermedics Lease, to pay to Tenant all accrued interest on the Thermedics
Termination Fee, to deliver to Tenant the original Assignment of Subleases, and
to record the Termination Notice at the Middlesex North Registry of Deeds.
SECTION XLVII. ASSIGNMENT OF SUBLEASES. Landlord and Tenant acknowledge
------------- -----------------------
that portions of the Premises are occupied by certain subtenants under the
following subleases (collectively, the "PERMITTED SUBLEASES"): (a) an Agreement
of Sublease dated as of April 1, 1997, as amended by First Amendment of Sublease
dated as of June 9, 1998, as further amended by the letter agreement dated
January 18, 2000, as further amended by a letter agreement dated March 1, 2000,
between Thermedics, as sublessor, and Thermo Cardiosystems Inc., as sublessee;
(b) an Agreement of Sublease dated as of June, 1997, between Thermedics, as
sublandlord, and Imagraph Corporation ("Imagraph"), as sublessee (the "Imagraph
Sublease"); and (c) an Agreement of Sublease dated as of February, 1997, as
amended by a letter agreement dated March 1, 2000, between Thermedics and
American Express Travel Related Services Company, Inc. Landlord and Tenant
further acknowledge that Lumisys Corporation, a Delaware corporation
("Lumisys"), successor to Imagraph under the Imagraph Sublease, sub-subleased
portions of the Premises subleased under the Imagraph Sublease under the
following sub-subleases (together, the "Permitted Sub-Subleases"): (i) a
Sublease Agreement dated November 9, 1999, between Lumisys and MMC Networks,
Inc., and (ii) a Sublease Agreement dated October 21, 1999, between Lumisys and
Foresight Imaging, LLC. Landlord hereby acknowledges its consent to the
execution of the Permitted Subleases, the subtenancies and occupancies of
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portions of the Premises under the Permitted Subleases, the assignment of the
subtenant's rights, interests and estate under the Imagraph Sublease by Imagraph
to Lumisys, the execution of the Permitted Sub-Subleases, the sub-subtenancies
and occupancies of portions of the Premises under the Permitted Sub-Subleases,
and the assignment by Thermedics of its rights, title and interests under the
Permitted Subleases pursuant to the Assignment of Subleases, which assignment
shall be effective simultaneously with the termination of the Thermedics Lease
and the creation of Tenant's rights, title, interest and estate in the Premises
under the Lease as of the Commencement Date. Landlord and Tenant hereby agree
that, the execution of the Termination Agreement and the termination of the
Thermedics Lease thereunder notwithstanding, the Permitted Subleases shall not
terminate, the rights, title, interests and estate of the sublandlord under the
Permitted Subleases shall not merge with Landlord's rights, title, interests or
estate in the Property, and the Permitted Subleases shall survive the
termination of the Thermedics Lease as direct subleases between Tenant, as
sublandlord, and the subtenants under the Permitted Subleases on the same terms
and conditions as the Permitted Subleases. Tenant shall accept the Premises
subject to the Permitted Subleases. Landlord hereby assigns to Tenant, without
any representation or warranty, any rights, title, interests and estate to which
Landlord may have succeeded in connection with the execution of the Termination
Agreement and the termination of the Thermedics Lease thereunder.
SECTION XLVIII. RENEWAL OPTION. Provided no Event of Default exists, Tenant
-------------- --------------
shall have the right to extend the term of this Lease for one (1) additional
term of five (5) years ("EXTENDED TERM") commencing upon the expiration of the
initial term. Tenant shall exercise the right to extend the term of this Lease
by written notice to Landlord no later twelve (12) months prior to the
expiration of the term. The Rent for the Extended Term shall be the greater of
the Rent payable under this Lease at the end of the initial term or the Market
Rent as hereafter defined. All of the other covenants, agreements, terms and
conditions contained in this Lease shall apply to the Extended Term. The "MARKET
RENT" shall mean the fair market annual rate of base rent per rentable square
foot, at the time of such notice from Tenant to Landlord, for leases of entire
buildings in the Chelmsford area, comparable in age, location, condition,
quality, size and amenities to the Premises, for terms of five years, on terms
and conditions comparable to the this Lease, which rate shall be multiplied by
the Net Rentable Area. Landlord shall notify Tenant in writing of Landlord's
determination of the Market Rent within 30 days after Tenant notifies Landlord
that Tenant is exercising its right to extend, provided Landlord shall not be
required to set the Market Rent prior to fourteen (14) months before the
expiration of the Term. If Tenant disagrees with Landlord's determination of the
Market Rent, Tenant shall notify Landlord of such
34
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disagreement within ten business days after receiving Landlord's determination
of the Market Rent. If Landlord and Tenant fail to agree on the Market Rent
within 30 days after Landlord receives such notification from Tenant, the Market
Rent shall be established using the following procedures:
(a) Landlord and Tenant each shall have the right, by written notice (a
"NOTICE OF ARBITRATION") to the other, to demand arbitration of the Market Rent.
The party demanding arbitration (the "first party") shall appoint an arbitrator
in the Notice of Arbitration. Within seven days after the Notice of Arbitration
is given, the other party (the "second party") shall by notice to the first
party appoint a second arbitrator. If the second party fails to appoint a
arbitrator within such seven-day period, the position taken by the first party
shall be deemed to be the correct resolution of such dispute.
(b) Within seven days after the designation of the second arbitrator,
Landlord and Tenant shall submit their respective positions with respect to the
determination of Market Rent. Within fourteen days after the designation of the
second arbitrators, the two arbitrators shall conduct such hearings and
investigations as they deem appropriate and determine the Market Rent. The
arbitrators, or either of them, shall give notice of such determination (or
notice of their inability to reach agreement, as the case may be) to Landlord
and Tenant within such fourteen-day period. Any agreement of the two arbitrators
shall be binding upon Landlord and Tenant.
(c) If the two arbitrators are unable to reach an agreement within such
fourteen-day period, and If the lower of the two determinations of the Market
Rent as determined by such two arbitrators is equal to or greater than 95% of
the higher of the Market Rent as determined by such two appraisers, the Market
Rent shall be deemed to be the average of such Market Rent as set forth in such
two determinations. If the lower determination of the Market Rent is less than
95% of the higher determination of the Market Rent, the two arbitrators shall,
within such fourteen-day period, designate a third arbitrator. If the two
arbitrators fail to agree upon the designation of a third arbitrator within such
fourteen-day period, then they or either of them shall give notice of such
failure to agree to Landlord and Tenant within such fourteen-day period. If
Landlord and Tenant fail to agree upon the selection of a third arbitrator
within seven days after the arbitrators give such notice, then either party on
behalf of both may apply to the president of the Greater Boston Real Estate
Board or, on his or her failure, refusal or inability to act, to a court of
competent jurisdiction, for the designation of such third arbitrator.
(d) Within seven business days after the designation of the third arbitrator,
the parties shall submit their respective positions with respect to the Market
Rent. Within fourteen days after the designation of the third arbitrator, the
third arbitrator shall conduct such hearings and investigations as he or she may
deem appropriate
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and determine the Market Rent. If the determinations of all three arbitrators
shall be different in amount, the average of the two nearest in amount shall be
deemed the Market Rent. The Market Rent of the subject space determined in
accordance with the provisions of this Section shall be binding and conclusive
on Tenant and Landlord. As indicated above, in no event shall the Market Rent be
less than the Rent applicable to the 12 calendar month period immediately
preceding the commencement of the Extended Term.
(e) All arbitrators shall be a disinterested person (a) who is employed by an
appraisal firm of recognized competence in the greater Boston area, (b) who has
not less than ten (10) years experience in appraising and valuing properties of
the general location, type and character as the Premises, and (c) who is either
a Senior Real Property Appraiser of the Society of Real Estate Appraisers or a
member of the Appraisal Institute (or any successor organization). Landlord and
Tenant shall each be entitled to present evidence to the arbitrators in support
of their respective positions. The arbitrators shall not have the power to add
to, modify or change any provisions of this Lease. The determination of the
arbitrator(s) shall be conclusive and shall have the same force as a judgment in
a court of competent jurisdiction. Judgment on the determination made by the
arbitrator(s) under the foregoing provisions may be entered in any court of
competent jurisdiction.
(f) Each party shall pay the fees, costs and expenses of the arbitrator
appointed by such party and of the attorneys and expert witnesses of such party
and one-half of the other fees, costs and expenses of arbitration properly
incurred under this Lease.
SECTION XLIX. FORCE MAJEURE. In the event that either party shall be delayed
------------ -------------
or hindered in or prevented from the performance of an act required under this
Lease, by reason of strikes, lockouts or labor troubles not restricted to
Tenant's or Landlord's respective business operations, or the inability to
procure materials, failure of power, restrictive governmental laws or
regulations, riots, insurrection, war or other reasons of a like nature not the
fault of the party delayed in performing work or doing the acts required, then
performance of such act shall be excused for the period of the delay and the
period for such party's performance of any such act shall be extended for a
period equivalent to the period of such delay. The provisions of this Section
shall in no event operate to excuse Tenant from the prompt payment of Rent, or
Additional Rent, or excuse performance due to lack of funds.
SECTION L. MULTIPLE COUNTERPARTS. This Lease may be executed
--------- ---------------------
simultaneously in two or more counterparts, each of which shall be deemed an
original but all of which shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have set their hands and seals as of
the day and year first above written.
Landlord:
NEW BOSTON MILL ROAD
LIMITED PARTNERSHIP:
By: New Boston Fund IV, Inc., a
Delaware corporation,
its General Partner,
By /s/ Jerome L. Rappaport, Jr
---------------------------
Name: Jerome L. Rappaport, Jr
Title: President
By /s/ James Rappaport
---------------------------
Name: James Rappaport
Title: Treasurer
Tenant:
SYCAMORE NETWORKS, INC.
By /s/ Frances M. Jewels
-------------------------
Name: Frances M. Jewels
Title: Vice President and Chief
Financial Officer
By /s/ Frances M. Jewels
-------------------------
Name: Frances M. Jewels
Title: Treasurer and Secretary
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EXHIBIT A
---------
Legal Description of the Land
-----------------------------
A parcel of land in Chelmsford, Middlesex County, Massachusetts, lying on the
westerly side line of Mill Road and the easterly side line of Elizabeth Drive
being shown as Lot 3 on a plan entitled "Subdivision Plan of Land in Chelmsford,
MA., for Raymond A. & Barbara F. Carye", dated January 4, 1985, by
Vanasse/Hangen Engineering, Inc., Consulting Engineers and Planners, recorded
with Middlesex North District Registry of Deeds, Plan Book 146, Plan 96, bounded
and described as follows:
BEGINNING at a point on the Easterly side line of Elizabeth Drive at the
southwesterly property corner of Lot 3;
THENCE along the Easterly side line of Elizabeth Drive a curved line to the
right having a radius of 25.00 feet a distance of 14.55 feet;
THENCE along the Easterly side line of Elizabeth Drive N. 30 degrees 39'07" E.
207.58 feet;
THENCE by land of Raymond A. & Barbara F. Carye S. 20 degrees 33'52" E. 400.38
feet;
THENCE by land of Raymond A. & Barbara F. Carye N. 69 degrees 26'08" E. 329.67
feet;
THENCE by land of Raymond A. & Barbara F. Carye S. 71 degrees 45'38" E. 193.00
feet;
THENCE by land of Raymond A. & Barbara F. Carye N. 36 degrees 57'46" E. 2.87
feet;
THENCE by land of Raymond A. & Barbara F. Carye S. 20 degrees 47'21" E. 417.84
feet to the Westerly side line of Mill Road;
THENCE along the Westerly side line of Mill Road a curved line to the left
having a radius of 825.90 feet a distance of 235.77 feet;
THENCE along the Westerly side line of Mill Road S. 36 degrees 00'19" W. 140.47
feet;
THENCE along the Westerly side line of Mill Road a curved line to the left
having a radius of 404.62 feet a distance of 6.38 feet;
THENCE by land now or formerly of the heirs of Bertha Sullivan N. 45 degrees
55'52" W. 444.71 feet;
THENCE by land now or formerly of the heirs of Bertha Sullivan S. 00 degrees
59'56" E. 0.94 feet;
THENCE by land now or formerly of the heirs of Bertha Sullivan N. 46 degrees
00'59" W. 112.57 feet;
THENCE by land of Raymond A. & Barbara F. Carye N. 20 degrees 33'12" W. 145.74
feet;
THENCE by land of Raymond A. & Barbara F. Carye N. 16 degrees 22'50" E. 58.75
feet;
THENCE by land of Raymond A. & Barbara F. Carye N. 42 degrees 48'14" W. 304.30
feet to the point of beginning.
Together with the benefit of a drainage easement agreement dated February 28,
1985, recorded with said Deeds, Book 2969, Page 1.
Together with the benefit of an access and septic easement agreement dated
February 28, 1985, recorded with said Deeds, Book 2969, Page 3.
Together with the benefit of an easement agreement, dated November 15, 1984,
recorded with said Deeds, Book 2909, Page 21.
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EXHIBIT B
---------
Form of Termination Agreement
-----------------------------
39
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EXHIBIT C
---------
Form of Notice of Termination of Lease
--------------------------------------
40
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EXHIBIT D
---------
Form of Escrow Agreement
------------------------
41
<PAGE>
EXHIBIT E
---------
Form of Assignment of Subleases
-------------------------------
42
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EXHIBIT F
---------
Form of Estoppel Certificates
-----------------------------
43
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ASSIGNMENT OF SUBLEASES
-----------------------
Thermedics Detection Inc, a Massachusetts corporation ("Assignor"), and
Sycamore Networks, Inc., a Delaware corporation ("Assignee"), enter into this
Assignment of Subleases (this "Assignment") as of March 8, 2000.
Whereas Assignor is the tenant of the real property commonly known as 220
Mill Road, Chelmsford, Massachusetts (the "Property"), under an Agreement of
Lease dated December 13, 1996 (the "Old Lease"), between Assignor and MBL Life
Assurance Corporation, predecessor in title to New Boston Mill Road Limited
Partnership, a Delaware limited partnership ("Landlord"); and
--------
Whereas Assignor subleased portions of the building on the Property under
the following subleases (collectively, the "Subleases"): (a) an Agreement of
Sublease dated as of April 1, 1997, as amended by First Amendment of Sublease
dated as of June 9, 1998, as further amended by the letter agreement dated
January 18, 2000, as further amended by a letter agreement dated March 1, 2000,
between Tenant, as sublessor, and Thermo Cardiosystems Inc., as sublessee; (b)
an Agreement of Sublease dated as of June, 1997, between Tenant, as sublandlord,
and Imagraph Corporation, as sublessee (the "Imagraph Sublease"); and (c) an
Agreement of Sublease dated as of February, 1997, as further amended by the
letter agreement dated as of March 1, 2000, between Tenant, as sublessor, and
American Express Travel Related Services Company, Inc., as sublessee; and
Whereas, under a Guaranty of Lease dated June, 1997 (the "Guaranty"),
Lumisys Corporation, a Delaware corporation, guarantied the full and punctual
payment and performance of the obligations of the subtenant under the Imagraph
Sublease; and
Whereas, under a Lease Termination Agreement dated on or about the date of
this Assignment (the "Termination Agreement"), Assignor and Landlord have agreed
to terminate the Old Lease as of May 31, 2000 (the "Termination Date"); and
Whereas Assignee has leased the Property from Landlord under a Lease
Agreement between Landlord and Tenant dated on or about the date of this
Agreement (the "New Lease"); and
Whereas, as an inducement to Assignee to execute the New Lease, Assignor
wishes to assign its rights, title, interests and estate as the sublandlord
under the Subleases and the beneficiary of the Guaranty to Assignee, and
Assignee is willing to accept such assignment, on the terms and conditions of
this Assignment;
Now, therefore, in consideration of the foregoing premises, the mutual
covenants in this Assignment and other good and valuable consideration, the
receipt and sufficiency
<PAGE>
of which Assignor and Assignee hereby acknowledge, Assignor and Assignee hereby
agree as follows:
1. Assignment and Assumption. Effective as of the date (the "Effective
-------------------------
Date") when (i) the Termination Date has occurred and (ii) Assignor has vacated,
quit and surrendered the Property, Assignor hereby assigns to Assignee all of
its rights, title, interests and estate as the sublandlord under the Subleases
and all of its rights and interests under the Guaranty, and Assignee hereby
accepts such assignment and assumes all of Assignor's obligations under the
Subleases arising or accruing on and after the Effective Date under and in
accordance with all of the terms and conditions of the Subleases, as amended by
the instruments specified above; provided, however, if Assignor exercises its
right under the Termination Agreement to terminate the Termination Agreement or
if Assignee exercises any right under the New Lease to terminate the New Lease,
this Assignment shall be terminate simultaneously without any liability of
either Assignor or Assignee to the other party. Any contrary provision
(including Section 14) of the Subleases notwithstanding, Assignor and Assignee
acknowledge and agree that the Subleases shall not terminate on the Termination
Date and shall survive the termination of the Old Lease under the Termination
Agreement.
2. Indemnity. Assignee shall indemnify Assignor from all obligations of the
---------
sublandlord under the Subleases arising or accruing on and after the Effective
Date.
3. Prorated Rental Payments. If any payments of rent, additional rent or
------------------------
other charges due under the Subleases relate to a period which includes time
both before and after the Effective Date, any such payment made by the
subtenants under the Subleases and received by Assignor or Assignee shall be
prorated according to the fractions of the total number of days in such period
that occur, respectively, before and after the Effective Date. Within 30 days
after receiving any such payments, Assignee shall pay to Assignor the prorated
portion of any such payment received by Assignee relating to the fractional
period before the Effective Date, and Assignor shall pay to Assignee the
prorated portion of any such payment relating to the fractional period on and
after the Effective Date.
4. Notices to Subtenants. At any time after the Effective Date, Assignor
---------------------
authorizes and directs Assignee to notify the subtenants under the Subleases in
writing that Assignee has executed the New Lease and taken possession of the
Property and to direct such subtenants to make all payments of rent, additional
rent and other charges due under the Subleases to Assignor. Assignor authorizes
and directs any such subtenant to rely on such notification from Assignee to
make such payments as so directed by Assignee.
2
<PAGE>
Assignor and Assignee execute this Assignment under seal as of March 8,
2000.
ASSIGNOR: ASSIGNEE:
THERMEDICS DETECTION INC. SYCAMORE NETWORKS, INC.
By: /s/ James Barbookles By: /s/ Frances M. Jewels
---------------------------- ---------------------------
Name: James Barbookles Name: Frances M. Jewels
Title: President/CEO Title: Vice President and Chief
Financial Officer
By: /s/ Kenneth J. Apicerno By: /s/ Frances M. Jewels
---------------------------- ---------------------------
Name: Kenneth J. Apicerno Name: Frances M. Jewels
Title: Treasurer Title: Treasurer and Secretary
3
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 2 to the 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
March 8, 2000
