-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FoJa5FiZWGatp34UZMhhs4UCtexJ5Y8RRtFwJI4d8OrIpQaDHfNZJ1s3c0jErofU PIoCoCBbc71xXGxbymyPeQ== 0000927016-00-004310.txt : 20001213 0000927016-00-004310.hdr.sgml : 20001213 ACCESSION NUMBER: 0000927016-00-004310 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20001028 FILED AS OF DATE: 20001212 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYCAMORE NETWORKS INC CENTRAL INDEX KEY: 0001092367 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 043410558 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27273 FILM NUMBER: 787590 BUSINESS ADDRESS: STREET 1: 10 ELIZABETH DRIVE CITY: CHELMSFORD STATE: MA ZIP: 01824 BUSINESS PHONE: 9782502900 MAIL ADDRESS: STREET 1: 10 ELIZABETH DRIVE CITY: CHELMSORD STATE: MA ZIP: 01824 10-Q 1 0001.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 28, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____ COMMISSION FILE NUMBER 333-25853 SYCAMORE NETWORKS, INC. (Exact name of registrant as specified in its charter) Delaware 04-3410558 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 150 Apollo Drive Chelmsford, MA 01824 (978) 250-2900 (Address Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) NONE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) Yes X No ___, and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ . The number of shares outstanding of the Registrant's Common Stock as of November 30, 2000 was 272,635,510. Sycamore Networks, Inc.
Index Part I. Financial Information Page No. Item 1. Financial Statements Consolidated Balance Sheets as of October 28, 2000 and July 31, 2000 3 Consolidated Statements of Operations for the three months ended October 28, 2000 and October 30, 1999 4 Consolidated Statements of Cash Flows for the three months ended October 28, 2000 and October 30, 1999 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosure About Market Risk 21 Part II. Other Information Item 1. Legal Proceedings 21 Item 6. Exhibits and Reports on Form 8-K 22 Signature 23 Exhibit Index 24
2 Part I. Financial Information ITEM 1. FINANCIAL STATEMENTS SYCAMORE NETWORKS, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) October 28, July 31, 2000 2000 ---------- ---------- Assets Current assets: Cash and cash equivalents $ 375,994 $ 429,965 Marketable securities 741,279 710,398 Accounts receivable, net of allowance for doubtful accounts of $401 and $0 at October 28, 2000 and July 31, 2000, respectively. 40,231 43,407 Inventories 53,563 39,739 Prepaids and other current assets 14,997 25,869 ---------- ---------- Total current assets 1,226,064 1,249,378 Property and equipment, net 71,053 42,840 Marketable securities 399,922 376,740 Other assets 27,429 19,438 ---------- ---------- Total assets $1,724,468 $1,688,396 ========== ========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 45,865 $ 49,030 Accrued compensation 2,945 7,177 Accrued expenses 16,300 7,529 Deferred revenue 49,904 29,708 Other current liabilities 5,352 8,866 ---------- ---------- Total current liabilities 120,366 102,310 850 4,487 Long-term liabilities Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value, 5,000,000 shares - - authorized; none issued or outstanding Common stock, $.001 par value; 1,500,000,000 shares 273 272 authorized; 272,529,584 and 271,854,606 shares issued and outstanding Additional paid-in capital 1,723,737 1,652,463 Accumulated deficit (57,398) (31,194) Notes receivable (100) (262) Deferred compensation (67,461) (44,714) Accumulated other comprehensive income 4,201 5,034 ---------- ---------- Total stockholders' equity 1,603,252 1,581,599 ---------- ---------- Total liabilities and stockholders' equity $1,724,468 $1,688,396 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 3 Sycamore Networks, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED ------------------- OCTOBER 28, OCTOBER 30, 2000 1999 -------- ------- Revenues ...................................................... $120,448 $19,510 Cost of revenues (exclusive of the non-cash stock compensation expense of $1,643 and $261) ..................... 64,139 10,340 -------- ------- Gross profit ................................................. 56,309 9,170 Operating expenses: Research and development (exclusive of the non-cash stock compensation expense of $25,388 and $884) ................. 35,679 9,329 Sales and marketing (exclusive of the non-cash stock compensation expense of $14,735 and $1,605) ............... 17,400 3,453 General and administrative (exclusive of the non-cash stock compensation expense of $987 and $539) .............. 4,062 956 Amortization of stock compensation ......................... 42,753 3,289 Acquisition costs .......................................... 4,948 - -------- ------- Total operating expenses .............................. 104,842 17,027 Loss from operations ......................................... (48,533) (7,857) Interest and other income, net ............................... 22,329 484 -------- ------- Net loss ..................................................... $(26,204) $(7,373) ======== ======= Basic and diluted net loss per share .......................... $(0.11) $(0.15) Weighted average shares used in computing basic and diluted net loss per share ................................ 230,658 49,490
The accompanying notes are an integral part of the consolidated financial statements. 4 SYCAMORE NETWORKS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Three months ended ------------------ October 28, October 30, 2000 1999 --------- -------- Cash flows from operating activities: Net loss $ (26,204) $ (7,373) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 5,716 700 Amortization of stock compensation 42,753 3,289 Tax benefit from employee stock plans 3,487 - Changes in operating assets and liabilities: Accounts receivable 3,176 (1,114) Inventories (13,824) (960) Prepaids and other current assets 10,872 2,038 Deferred revenue 20,196 (247) Accounts payable (3,165) 4,747 Accrued expenses and other liabilities (833) 135 --------- -------- Net cash provided by operating activities 42,174 1,215 --------- -------- Cash flows from investing activities: Purchases of property and equipment (33,929) (3,169) Purchases of marketable securities (507,380) (8,082) Maturities of marketable securities 452,484 4,906 Increase in other assets (7,991) (440) --------- -------- Net cash used in investing activities (96,816) (6,785) --------- -------- Cash flows from financing activities: Proceeds from issuance of common stock, net 2,289 285,037 Payments received for notes receivable 162 - Payments on notes payable (1,780) (4,931) --------- -------- Net cash provided by financing activities 671 280,106 --------- -------- Net increase (decrease) in cash and cash equivalents (53,971) 274,536 Cash and cash equivalents, beginning of period 429,965 27,332 --------- -------- Cash and cash equivalents, end of period $ 375,994 $301,868 ========= ======== Supplementary non-cash activity: Issuance of common stock in exchange for notes receivable - 100
The accompanying notes are an integral part of the consolidated financial statements. 5 SYCAMORE NETWORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF THE BUSINESS Sycamore Networks, Inc. (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 and Europe. 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's ultimate success is dependent upon its ability to successfully develop and market its products. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION All historical financial information has been restated to reflect the acquisition of Sirocco Systems, Inc. in the first quarter of fiscal 2001, which was accounted for as pooling of interests. The accompanying financial data as of October 28, 2000 and for the three months ended October 28, 2000 and October 30, 1999 has been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 2000. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present a fair statement of financial position as of October 28, 2000, results of operations for the three months ended October 28, 2000 and October 30, 1999 and cash flows for the three months ended October 28, 2000 and October 30, 1999 have been made. The results of operations for the three months ended October 28, 2000 are not necessarily indicative of the operating results for the full fiscal year or any future periods. In September 1999, the FASB issued Emerging Issues Task Force Topic No. D-83 ("EITF D-83"), "Accounting for Payroll Taxes Associated with Stock Option Exercises." EITF D-83 requires that payroll taxes paid on the difference between the exercise price and the fair value of acquired stock in association with an employee's exercise of non-qualified stock options to be treated as operating expenses. Payroll taxes on stock option exercises were $1.8 million in the first quarter of fiscal 2001. 3. NET LOSS PER SHARE AND PRO FORMA 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, less the weighted-average number of shares of common stock that are subject to repurchase. 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. Pro forma net loss per share 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. 6 All share and per share data presented reflects two three-for-one stock splits effected in August 1999 and February 2000. The following table sets forth the computation of basic and diluted net loss per share, (in thousands, except per share data):
THREE MONTHS ENDED -------------------------------------------- OCTOBER 28, October 30, 2000 1999 -------- -------- Numerator $(26,204) $ (7,373) Net loss ======== ======== Denominator HISTORICAL: Weighted-average shares of common stock outstanding 272,447 104,245 Weighted-average shares subject to repurchase (41,789) (54,755) -------- -------- Shares used in per-share calculation - basic and diluted 230,658 49,490 ======== ======== Net loss per share: Basic and diluted $ (0.11) $ (0.15) ======== ======== Denominator PRO FORMA: Weighted-average shares of common stock outstanding 230,658 49,490 Weighted-average number of shares assumed upon conversion of redeemable convertible preferred stock - 129,379 -------- -------- Shares used in per-share calculation - pro forma basic and diluted 230,658 178,869 ======== ======== Net loss per share: Pro forma basic and diluted $ (0.11) $ (0.04) ======== ========
Options to purchase 5,363,868 and 248,955 shares of common stock at respective average exercise prices of $114.69 and $9.50 have not been included in the computation of diluted net loss per share for the three months ended October 28, 2000 and October 30, 1999, respectively, as their effect would have been anti- dilutive. 4. INVENTORY Inventory consisted of the following (in thousands): October 28, July 31, 2000 2000 ------- ------- Raw materials $18,559 $14,340 Work in process 8,242 3,685 Finished goods 26,762 21,714 ------- ------- $53,563 $39,739 ======= =======
5. COMPREHENSIVE LOSS The Company reports comprehensive loss in accordance with Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS 130). The components of comprehensive loss are as follows (in thousands): 7
THREE MONTHS ENDED OCTOBER 28, 2000 OCTOBER 30, 1999 ------------------- ------------------- Net loss $(26,204) $(7,373) Other comprehensive income: Unrealized gain on investments 4,201 - -------- ------- Comprehensive loss $(22,003) $(7,373) ======== =======
6. ACQUISITION On September 7, 2000, the Company acquired Sirocco Systems, Inc. ("Sirocco") in a transaction accounted for as a pooling of interests. An aggregate of approximately 28.6 million shares of Sycamore common stock were either exchanged for all outstanding shares of Sirocco or reserved for common stock issuable under outstanding Sirocco stock options assumed by us in the transaction. Acquisition costs for the first quarter of fiscal 2001 were $4.9 million. Since the fiscal years of Sycamore and Sirocco differ, the historical periods combined giving effect to the acquisition are as follows: SYCAMORE Sirocco - -------- ------- Fiscal year ended July 31, 1999 Fiscal year ended December 31, 1999 Fiscal year ended July 31, 2000 Fiscal year ended July 31, 2000 Three months ended October 28, 2000 Three months ended October 28, 2000 and October 30, 1999 and October 30, 1999 The three months ended October 30, 1999 include Sirocco's financial results which are also recorded in the fiscal year ended December 31, 1999. Sirocco had no revenue and a net loss for the three months ended October 30, 1999 of $1,656,000. Sirocco's financial results for the five month period ended December 31, 1999, which has been reflected as an adjustment to retained earnings, include no revenue and a net loss of $3,659,000. There were no intercompany transactions requiring elimination in any period presented. 7. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued Statement of Financial Accounting Standards No.133, Accounting for Derivative Instruments and Hedging Activities (SFAS No.133). This accounting standard, which is effective for all fiscal quarters of fiscal years beginning after June 15, 2000, requires that all derivatives be recognized as either assets or liabilities at estimated fair value. In June 2000, the FASB issued Statement of Financial Accounting Standards No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of SFAS No. 133. This accounting standard amended the accounting and reporting standards of SFAS No. 133 for certain derivative instruments and hedging activities. The adoption of SFAS No. 133, as amended, is not expected to have a material effect on the Company's financial position or results of operations. In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101). SAB 101 summarizes certain areas of the Staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. In June 2000, the SEC issued SAB No. 101B which defers the implementation date of SAB 101 until no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999, with earlier adoption encouraged. The Company is required to and will adopt SAB 101 in the fourth quarter of fiscal 2001. The Company believes that its current revenue recognition policy complies with SAB 101 and does not expect the adoption to have a material impact on its financial position or results of operations. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Except for the historical information contained herein, we wish to caution you that certain matters discussed in this report constitute forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including, without limitation, those risks and uncertainties discussed under the heading "Factors That May Affect Future Results" contained in our Annual Report on Form 10-K and other reports we file from time to time with the SEC and the risks and uncertainties discussed under the captions "Risks Related To Our Business" and "Risks Related to the Securities Market." Forward looking statements include statements regarding our expectations, beliefs, intentions or strategies regarding the future and can be identified by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may, "should," "will," and "would" or similar words. 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 in February 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 Node in August 1999, our Silvx Manager Network Management System in November 1999 and our SN 16000 Intelligent Optical Switch in June 2000. On September 7, 2000, we acquired Sirocco Systems, Inc. ("Sirocco") in a transaction accounted for as a pooling of interests. An aggregate of approximately 28.6 million shares of Sycamore common stock were either exchanged for all outstanding shares of Sirocco or reserved for common stock issuable under outstanding Sirocco stock options assumed by us in the transaction. All historical periods combined give effect to the acquisition. RESULTS OF OPERATIONS REVENUES Revenues for the first quarter of fiscal 2001 increased 517% to $120.4 million from $19.5 million for the first quarter of fiscal 2000. The increase in revenues represents increased market acceptance of our products and the broadening of our product offerings, including the SN8000 and SN16000. For the first quarter of fiscal 2001, three customers individually represented more than ten percent of our revenues compared to one customer in the first quarter of fiscal 2000. COST OF REVENUES Cost of revenues for the first quarter of fiscal 2001 increased 520% to $64.1 million from $10.3 million for the first quarter of fiscal 2000. Cost of revenues as a percentage of revenue was 53% for the first quarter of fiscal 2001 and fiscal 2000. The increase in cost of revenues is primarily related to increased revenues, as well as headcount increases in our manufacturing overhead and customer service organizations and warranty and other period costs. The Company expects cost of revenues to continue to increase as revenues increase. Cost of revenues, and the resulting gross margins, may be highly variable and dependent on many factors, some of which are outside the Company's control, such as the demand for the Company's products and the mix of products sold. RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses for the first quarter of fiscal 2001 increased 283% to $35.7 million from $9.3 million for the first quarter of fiscal 2000. Research and development expenses as a percentage of revenue were 29.6% and 47.8% for the first quarter of fiscal 2001 and fiscal 2000, respectively. The increase in expenses was primarily due to increased costs associated with a significant increase in personnel and personnel-related expenses, increases in non-recurring engineering costs and increases 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 the dollar amounts of research and development expenses will increase in future periods to support the continued development of our intelligent optical transport and optical switching products as well as new or complementary technologies. 9 SALES AND MARKETING EXPENSES Sales and marketing expenses for the first quarter of fiscal 2001 increased 404% to $17.4 million from $3.5 million for the first quarter of fiscal 2000. Sales and marketing expenses as a percentage of revenue were 14.4% and 17.7% for the first quarter of fiscal 2001 and fiscal 2000, respectively. The increase in expenses reflect the hiring of additional sales and marketing personnel, sales based commissions, additional office space and marketing program costs, including web development, trade shows and new 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. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses for the first quarter of fiscal 2001 increased 325% to $4.1 million from $1 million for the first quarter of fiscal 2000. General and administrative expenses as a percentage of revenue were 3.4% and 4.9% for the first quarter of fiscal 2001 and fiscal 2000, respectively. 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 the expansion of business activity and related expenses to support our operations. AMORTIZATION OF STOCK COMPENSATION Amortization of stock compensation expense for the first quarter of fiscal 2001 increased 1,200% to $42.8 million from $3.3 million for the first quarter of fiscal 2000. Amortization of stock compensation expense primarily resulted from the granting of stock options and restricted shares with exercise or sale prices which were deemed to be below fair market value and with the granting of options to non-employees and consultants. The increase is primarily due to the accelerated vesting of certain restricted stock and stock options in connection with our merger with Sirocco Systems, Inc. of approximately $36.3 million. Amortization of stock compensation relating to these grants is expected to impact our reported results of operations through the third quarter of fiscal 2005. ACQUISITION COSTS Acquisition costs for the first quarter of fiscal 2001 were $4.9 million related to the acquisition of Sirocco Systems, Inc. These costs include legal and accounting services and other professional fees associated with the transaction. INTEREST INCOME AND OTHER INCOME, NET Interest income and other income, net increased to $22.3 million for the first quarter of fiscal 2001 compared to $0.5 million for the first quarter of fiscal 2000. Interest income and other income, net as a percentage of revenue was 18.5% and 2.5% for the first quarter of fiscal 2001 and fiscal 2000, respectively. The increase in interest income and other income primarily reflects the invested proceeds of our two public offerings within fiscal year 2000. PROVISION FOR INCOME TAXES We did not provide for taxes for the first quarter of fiscal 2001 due to the net loss within the quarter, and for fiscal 2000 primarily due to the uncertainty regarding the realization of our net operating loss carryforwards and tax credits. 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 $84 million and through borrowings on long-term debt agreements for the purchase of capital equipment. In fiscal 2000, we completed two public offerings, for which we sold 30.9 million shares of common stock and generated net proceeds of $1.5 billion. We primarily invest excess funds in investment grade short-term money market funds, commercial paper, government and non-government debt securities. As of October 28, 2000, we had $1.5 billion in cash, cash equivalents and marketable securities. 10 Net cash provided by operating activities for the three months ended October 28, 2000 was $42.2 million, compared to $1.2 million for the three months ended October 30, 1999. The increase in net cash provided by operating activities is primarily due to increased deferred revenue and adjustments for certain non-cash charges for amortization of stock compensation and depreciation, partially offset by increased net losses and inventory purchases. Net cash used in investing activities was $96.8 million for the three months ended October 28, 2000, compared to $6.8 million for the three months ended October 30, 1999. The increase in net cash used in investing activities reflects the net purchase of available-for-sale marketable securities and increased purchases of property and equipment, primarily for computers and test equipment for our development and manufacturing activities. Cash provided by financing activities for the first quarter of fiscal 2001 primarily consisted of $2.3 million of proceeds from the sale of our common stock and $1.8 million of payments on notes payable. Net cash provided by financing activities for the first fiscal quarter of fiscal 2000 primarily reflects the net proceeds and use of proceeds generated from our IPO in October 1999. 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. Currently we have customer financing commitments of approximately $200 million, subject to draw down over two to three years and completion of definitive documentation. Our financing of customers may include extending credit to them, lease financing or guaranteeing their indebtedness to third parties. Depending on 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 on a number of factors, including our capital structure, the level of our available credit and our ability to factor commitments. The extension of financing to our customers will limit the capital that we have available for other uses. Although we believe that our current cash 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. RISKS RELATED TO OUR BUSINESS 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 3000 Optical Access Switch, SN 6000 Intelligent Optical Transport product, SN 8000 Intelligent Optical Network Node, Silvx Manager Network Management System and SN 16000 Intelligent Optical Switch are the only products that have been shipped to customers. We cannot assure you that we will be successful in completing the development or introduction of new products or enhancing our existing 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. WE EXPECT THAT SUBSTANTIALLY ALL OF OUR REVENUE WILL BE GENERATED FROM A LIMITED NUMBER OF CUSTOMERS, AND OUR REVENUE 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 a majority of our revenues to date. In the first quarter of fiscal 2001, two other customers each accounted for over 10% of our revenues. None of these customers is contractually committed to purchase any minimum quantities of products from us. We expect that in the foreseeable future a majority of our revenues will continue to depend on sales of our intelligent optical networking products to a limited number of 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 a downturn in their business, would seriously harm our financial condition or results of operations. 11 OUR FAILURE TO INCREASE OUR REVENUE WOULD PREVENT US FROM ACHIEVING PROFITABILITY We cannot assure you that our revenues will grow or that we will generate sufficient revenues to achieve 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. Although our revenue has grown in recent quarters, we cannot be certain that our revenue growth will continue or increase in the future or that we will realize sufficient revenues to be profitable on an annual or quarterly basis. 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. OUR LIMITED OPERATING HISTORY MAKES FORECASTING DIFFICULT We were founded in February 1998. We shipped our SN 6000 Intelligent -Optical Transport product in May 1999, our SN 8000 Intelligent Optical Node in August 1999, our SilvxManager Network Management System in November 1999, our SN 16000 Intelligent Optical Switch in June 2000 and our SN 3000 Optical Access Switch in October 2000. 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 depend, among other things, on the level of demand for intelligent optical networking products, which is a new and rapidly evolving market. If we do not achieve our expected revenue, our operating results will be below our expectations and the expectations of our investors and market analysts, which could cause the price of our common stock to decline. 12 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. 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 face unpredictable and growing demand for components. There is in an industry-wide shortage of some optical components which may result in increased pricing of such components, extended waiting periods after the placement of orders for such components and allocations by suppliers limiting the supply of such components to a given customer in a specific time period. Because optical components are integrated into our products, this shortage could negatively impact our sales and operating results. 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. 13 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 ensures 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 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 a 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. 14 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 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 are currently expanding our customer service and support organization and will need to increase our staff to support new customers. The installation and 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, our continued growth may be adversely affected and 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 have limited 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 have supply contracts with Celestica Corporation and Jabil Circuit Inc., which provide comprehensive manufacturing services, including assembly, test, control and shipment to our customers, and procure material on our behalf. We may not be able to effectively manage our relationship with such contract manufacturers, and such contract manufacturers 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. We also purchase products from certain other manufacturers, primarily 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. 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; 15 * 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; * employer payroll taxes to be paid on an employee's gain on stock options exercised (such payroll taxes are recorded as operating expenses and could be material based upon the number of optionees who exercise their options and the price of our common stock); 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 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 or that our net sales may grow at a slower quarter over quarter percentage rate. In this event, the price of our common stock could decrease. 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, develops more slowly than we expect or is not sustained, our business, results of operations and financial condition would be seriously harmed. 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 will 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. 16 UNDETECTED SOFTWARE OR HARDWARE ERRORS AND PROBLEMS ARISING FROM USE OF OUR PRODUCTS IN CONJUNCTION WITH OTHER VENDORS' PRODUCTS COULD RESULT IN DELAYS OR LOSS OF MARKET ACCEPTANCE OF OUR PRODUCTS Networking products frequently contain undetected software or hardware errors when first introduced or as new versions are released. We expect that errors will be found from time to time in new or enhanced products after we begin commercial shipments. In addition, service providers typically use our products in conjunction with products from other vendors. As a result, when problems occur, it may be difficult to identify the source of the problem. These problems may cause us to incur significant warranty, support and repair costs, divert the attention of our engineering personnel from our product development efforts and cause significant customer relations problems. The occurrence of these problems could result in the delay or loss of market acceptance of our products and would likely have a material adverse effect on our business, results of operations and financial condition. Defects, integration issues or other performance problems in our products could result in financial or other damages to our customers or could damage market acceptance for our products. Our customers could also seek damages for losses from us. A product liability claim brought against us, even if unsuccessful, would likely be time consuming and costly. OUR FAILURE TO ESTABLISH AND MAINTAIN KEY CUSTOMER RELATIONSHIPS MAY RESULT IN DELAYS IN INTRODUCING NEW PRODUCTS OR CAUSE CUSTOMERS TO FOREGO PURCHASING OUR PRODUCTS Our future success will also depend upon our ability to develop and manage key customer relationships in order to introduce a variety of new products and product enhancements that address the increasingly sophisticated needs of our customers. Our failure to establish and maintain these customer relationships may adversely affect our ability to develop new products and product enhancements. In addition, we may experience delays in releasing new products and product enhancements in the future. Material delays in introducing new products and enhancements or our inability to introduce competitive new products may cause customers to forego purchases of our products and purchase those of our competitors, which could seriously harm our business. 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 both domestically and internationally. For example, at October 30, 1999, we had a total of 228 employees and at October 28, 2000, we had a total of 904 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. 17 OUR ABILITY TO COMPETE COULD BE JEOPARDIZED IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS FROM THIRD-PARTY CHALLENGES We rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. We also enter into confidentiality or license agreements with our employees, consultants and corporate partners and control access to and distribution of our software, documentation and other proprietary information. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our products or technology. Monitoring unauthorized use of our products is difficult and we cannot be certain that the steps we have taken will prevent unauthorized use of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. If competitors are able to use our technology, our ability to compete effectively could be harmed. IF NECESSARY LICENSES OF THIRD-PARTY TECHNOLOGY ARE NOT AVAILABLE TO US OR ARE VERY EXPENSIVE, OUR PRODUCTS COULD BECOME OBSOLETE From time to time we may be required to license technology from third parties to develop new products or product enhancements. We cannot assure you that third- party licenses will be available to us on commercially 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; 18 * 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. 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. On September 7, 2000, we completed our acquisition of Sirocco Systems, Inc. We may also evaluate other potential transactions and transaction prospects. In the event of an acquisition, we could: * issue stock that would dilute our current stockholders' percentage ownership; * incur debt; * assume liabilities; * incur amortization expenses related to goodwill and other intangible assets; or * incur large and immediate write-offs. Our ability to achieve the benefits of any acquisition, including our acquisition and integration of Sirocco, 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 * problems with integrating employees and potential loss of key employees. 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. ANY EXTENSION OF CREDIT TO OUR CUSTOMERS MAY SUBJECT US TO CREDIT RISKS AND LIMIT THE CAPITAL THAT WE HAVE AVAILABLE FOR OTHER USES We are experiencing increased demands for customer financing and we expect these demands to continue. We believe it is a competitive factor in obtaining business. 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. Such financing activities subject us to the credit risk of customers whom we finance. In addition, our ability to recognize revenue from financed 19 sales will depend upon the relative financial condition of the specific customer, among other factors. Although we have programs in place to monitor the risk associated with vendor financing, we cannot assure you that such programs will be effective in reducing our risk of an impaired ability to pay on the part of a customer whom we have financed. We could experience losses due to customers failing to meet their financial obligations which could harm our business and materially adversely affect our operating results and financial condition. RISKS RELATED TO THE SECURITIES MARKET 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; * significant changes or slowdowns in the funding and spending patterns of our current and prospective customers; * 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; * failure by us to meet product milestones; * acquisitions, distribution partnerships, joint ventures or capital commitments; * changes in financial estimates by securities analysts; * sales of our 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. These broad market and industry factors may materially adversely affect the market price of our common stock, regardless of our actual operating performance. In the past, following periods of volatility in the market price of a company's securities, securities class-action litigation has often been instituted against such companies. Such litigation, if instituted, could result in substantial costs and a diversion of management's attention and resources. THERE MAY BE SALES OF A SUBSTANTIAL AMOUNT OF OUR COMMON STOCK THAT COULD CAUSE OUR STOCK PRICE TO FALL As of October 28, 2000, options to purchase a total of 30,787,305 shares of our common stock were outstanding, which amount includes options to purchase shares of our common stock issued in connection with our acquisition of Sirocco Systems, Inc. These options are subject to vesting schedules. A number of the shares underlying these options are freely tradable. In addition, certain of our current stockholders hold a substantial number of shares which are subject to restrictions limiting their ability to sell such shares. These stockholders may be able to sell such shares in the public market in the near future. Sales of a substantial number of shares of our common stock could cause our stock price to fall. In addition, sales of shares by our stockholders could impair our ability to raise capital through the sale of additional stock. 20 INSIDERS OWN A SUBSTANTIAL NUMBER OF SYCAMORE SHARES AND COULD LIMIT YOUR ABILITY TO INFLUENCE THE OUTCOME OF KEY TRANSACTIONS, INCLUDING CHANGES OF CONTROL As of October 28, 2000, the executive officers, directors and entities affiliated with them, in the aggregate, beneficially owned approximately 48.1% of our outstanding common stock. These stockholders, if acting together, would be able to influence significantly 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, by-laws, 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The following discussion about our market risk disclosures involves forward- looking statements. Actual results could differ materially from those projected in the forward-looking statements. We are exposed to market risk related to changes in interest rates and foreign currency exchange rates. We do not use derivative financial instruments for speculative or trading purposes. INTEREST RATE SENSITIVITY We maintain a portfolio of cash equivalents and short-term and long-term investments in a variety of securities including; commercial paper, certificates of deposit, money market funds and government and non-government debt securities. These available-for-sale securities are subject to interest rate risk and may fall in value if market interest rates increase. If market interest rates were to increase immediately and uniformly by 10 percent from levels at October 28, 2000, the fair value of the portfolio would decline by approximately $5.1 million. We have the ability to hold our fixed income investments until maturity, and therefore do not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on our securities portfolio. EXCHANGE RATE SENSITIVITY We operate primarily in the United States, and all sales to date have been made in US dollars. Accordingly, there has not been any material exposure to foreign currency rate fluctuations. Our business is becoming increasingly global. As a result, in the future we may make sales in non-dollar currencies and have exposure to foreign currency rate fluctuations. PART II. OTHER INFORMATION Item 1. 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. 21 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibits: (a) List of Exhibits Number Exhibit Description ------ -------------------- **3.1 Amended and Restated Certificate of Incorporation **3.2 Certificate of Amendment to the Amended and Restated Certificate of Incorporation **3.3 Amended and Restated By-Laws * 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 Registrant defining the rights of holders of common stock 10.1 Purchase and Sale Agreement dated as of October 13, 2000 between Vesper Park, LLC and Sycamore Networks, Inc. ***99.2 Escrow Agreement dated as of September 7, 2000 by and among Sycamore Networks, Inc., the Stockholder Representative named therein and the Escrow Agent named therein 27.1 Financial Data Schedule (Filed Electronically)
* Incorporated by reference to Sycamore Networks Inc.'s Registration Statement on Form S-1 (Registration Statement No. 333-84635). ** Incorporated by reference to Sycamore Networks Inc.'s Registration Statement on Form S-1 (Registration Statement File No. 333-30630). *** Incorporated by reference to Sycamore Networks Inc.'s Registration Statement on Form S-4 (Registration Statement No. 333-40146) (b) Reports on Form 8-K : The Company filed a Current Report on Form 8-K on September 11, 2000 relating to the completion of its acquisition of Sirocco Systems, Inc. pursuant to an Agreement and Plan of Merger dated as of June 5, 2000 by and among the Company, Sirocco Systems, Inc. and Tropical Acquisition Corporation. 22 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Sycamore Networks, Inc. /s/ Frances M. Jewels - --------------------- Frances M. Jewels Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer) Dated: December 11, 2000 23 EXHIBIT INDEX Number Exhibit Description - ------ ------------------- **3.1 Amended and Restated Certificate of Incorporation **3.2 Certificate of Amendment to the Amended and Restated Certificate of Incorporation **3.3 Amended and Restated By-Laws * 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 Registrant defining the rights of holders of common stock 10.1 Purchase and Sale Agreement dated as of October 13, 2000 between Vesper Park, LLC and Sycamore Networks, Inc. ***99.2 Escrow Agreement dated as of September 7, 2000 by and among Sycamore Networks, Inc., the Stockholder Representative named therein and the Escrow Agent named therein 27.1 Financial Data Schedule (Filed Electronically)
* Incorporated by reference to Sycamore Networks Inc.'s Registration Statement on Form S-1 (Registration Statement No. 333-84635). ** Incorporated by reference to Sycamore Networks Inc.'s Registration Statement on Form S-1 (Registration Statement File No. 333-30630). *** Incorporated by reference to Sycamore Networks Inc.'s Registration Statement on Form S-4 (Registration Statement No. 333-40146) 24 EX-10.1 2 0002.txt PURCHASE AND SALE AGREEMENT PURCHASE AND SALE AGREEMENT --------------------------- Vesper Park, LLC, a Massachusetts limited liability company (the "Seller"), agrees to sell the Property (as hereinafter defined), and Sycamore Networks, Inc., a Delaware corporation (the "Buyer"), agrees to buy the Property, on the terms and subject to the conditions of this Agreement. ARTICLE I Description of the Property --------------------------- 1.1. Property. The "Property" shall consist of the land, together with the -------- improvements thereon, located in Tyngsborough, Middlesex County, Massachusetts, shown as Lots 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16 and 17 and the Lot entitled "Green Space `A'" on the plan (the "Plan") entitled "Definitive Plan, Vesper Executive Park Subdivision of Land in Tyngsborough, Mass." dated December 11, 1987, revised March 1, 1988, prepared by Dana F. Perkins & Assoc., Inc., recorded in the Middlesex County Northern District Registry of Deeds (the "Registry") in Plan Book 166 as Plan 53. 1.2. Appurtenant Rights. The Seller will convey the Property to Sycamore ------------------ together with the following (collectively, the "Appurtenant Rights and Interests"): (a) All of Seller's right, title and interest to those portions of the parcel or parcels of land entitled "Potash Hill Road" on the Plan beginning at the southeast portion of the parcel of land entitled "Temporary Turnaround (End of Phase I Roadway)" on the Plan and continuing in a counterclockwise direction through the Property to Westford Road (the "Discontinued Road"); (c) The right, appurtenant to the Property, to use all other portions of Potash Hill Road for all purposes for which roads and ways may be lawfully used in Town of Tyngsborough in common with Seller, its successors and assigns and others entitled thereto; (d) The benefit, in common with others (including Seller and its successors and assigns) entitled to such benefits, of all easements, licenses, restrictions, reservations and other rights and interests of record that are appurtenant to the Property or said Potash Hill Road; and (d) The benefit, in common with others (including Seller and its successors and assigns) entitled to such benefits, of all consents, variances, licenses, permits or other governmental authorizations and approvals affecting or relating to the Property and said Potash Hill Road, the benefits of which are transferable to the owner of the Property or to the owner of those portions of Potash Hill Road acquired by the Buyer or which may be transferred to the Buyer by their terms. ARTICLE II Payment of Purchase Price ------------------------- 2.1. Purchase Price. At the Closing (as hereinafter defined), the Buyer shall -------------- pay, subject to the provisions of Section 2.3 below, an amount (the "Purchase Price") equal to $12,000,000.00, of which: (a) $1,000,000.00 (the "Deposit") has been deposited with Goulston & Storrs, P.C. (the "Escrow Agent") to be held in escrow and disbursed in accordance with the terms and conditions of Section 2.2 of this Agreement and Exhibit A attached to this Agreement; and (b) $11,000,000.00, subject to adjustments under Sections 2.3, 4.4 and 4.5 of this Agreement (the "Closing Payment"), shall be paid to the Seller at the Closing by a wire transfer (written instructions for which the Seller shall provide to the Buyer at least three business days before the Closing) or a certified or bank check. 2.2. Deposit. (a) The Escrow Agent shall deposit the Deposit in an interest- ------- bearing money-market account, and the Buyer shall pay any income taxes on such interest. The provisions of Exhibit A, entitled "Escrow Agent Protective Provisions" and attached to this Agreement, are incorporated into this Agreement, and the Seller and the Buyer agree that the Escrow Agent shall have the benefit of such provisions. Without limiting the generality of the immediately preceding sentence, in the event of any apparent conflict between the duties of the Escrow Agent under the body of this Agreement and the provisions of said Exhibit A, the provisions of said Exhibit A shall control. (b) If (i) the Buyer exercises its right to terminate this Agreement under Section 4.4 of this Agreement or (ii) at the Closing, the Buyer tenders the Closing Payment but the Seller fails to perform its obligations set forth in Sections 1.2 4.1, 4.2, 4.4 and 5.2 of this Agreement, then the Escrow Agent shall return to the Buyer the Deposit and all accrued interest on the Deposit. Subject to the terms and conditions of the immediately preceding sentence, if the Buyer otherwise fails to purchase the Property for any reason (or no reason) at the Closing, the Escrow Agent shall pay to the Seller the Deposit and all accrued interest on the Deposit. Upon the acceptance and, as appropriate, recordation of the Conveyance Documents (as defined in Section 5.2), the Escrow Agent shall pay the Deposit to the Seller, and the Escrow Agent shall pay all accrued interest on the Deposit to the Buyer. In the event of a dispute concerning the disposition of the Deposit, the Escrow Agent shall dispose of the Deposit only in accordance with (i) a written direction signed by both the Seller and the Buyer or (ii) a final order of court of competent jurisdiction, or (iii) as provided in Exhibit A attached to, and incorporated into, this Agreement. (c) The Seller shall pay any fees charged, and any reasonable out-of- pocket expenses incurred, by the Escrow Agent in connection with the performance of its duties 2 under this Section 2.2, except for any such expenses incurred in connection with any such dispute concerning the disposition of the Deposit. In the event of any such dispute, the Escrow Agent shall be reimbursed for its reasonable out-of- pocket expenses incurred in connection with such dispute and any settlement of such dispute either (i) as the Seller and the Buyer may mutually agree in connection with any such settlement or (ii) in the event of the resolution of such dispute by a final order, decree or judgment by a court of competent jurisdiction, by the unsuccessful party in the legal action resulting in such order, decree or judgment. 2.3. Closing Adjustments. The following adjustments to the Closing Payment ------------------- shall be made at the Closing: (a) The Seller shall pay (i) any stamp, excise or other tax payable on the recording of the Deed (as hereinafter defined), (ii) all recording fees for any document, other than the Deed, recorded to render title to the Property in compliance with this Agreement, and (iii) any other expenses customarily paid by the Seller in a real estate transaction according to conveyancing practices in Massachusetts. (b) The Buyer shall pay (i) the recording fees in connection with the recordation of the Deed and (ii) any other expenses customarily paid by the Buyer in a real estate transaction according to conveyancing practices in Massachusetts. (c) The following charges shall be prorated between the Buyer and the Seller on a daily basis as of 12:01 a.m. on the date of the Closing: (i) real estate taxes assessed or imposed with respect to the Property for the then current fiscal tax year; (ii) municipal assessments and betterments assessed after the date of this Agreement; (iii) such other charges as are customarily apportioned between sellers and buyers of commercial real estate in Massachusetts. 2.4. Real Estate Taxes. If, at the Closing, the rate of real estate taxes, the ----------------- assessed valuation of the Property and/or the amount of any assessments or betterments is not fixed for the then current fiscal tax year, real estate taxes, assessments and betterments shall be apportioned upon the basis of the rate, valuation or amount fixed for the then preceding fiscal tax year. At the request of the Buyer or the Seller within one year after the Closing, such taxes, assessments and betterments shall be readjusted after the new rate or valuation can be ascertained. The provisions of this Section 2.4 shall survive the delivery of the Deed. ARTICLE III Seller's Representations and Warranties --------------------------------------- 3 3.1 Litigation. The Seller represents and warrant to the Buyer that, to the ---------- actual knowledge solely of Elkin McCallum, the Seller's Manager, without any investigation of any kind, there is no action, suit or investigation pending or threatened against the Property before any court or arbitrator or any governmental body, agency or official. 3.2 Environmental Compliance. The Seller represents and warrant to the Buyer ------------------------ that, except as set forth in the Level I Environmental Site Assessment of Sanborn, Head & Associates dated July 22, 1998, to the actual knowledge solely of Elkin McCallum, the Seller's Manager, without any investigation of any kind, no notice, notification, demand, request for information, citation, summons or other complaint has been served on, or delivered to, the Seller in writing by any entity or individual, no penalty has been assessed, and no investigation or review is pending or threatened by any governmental or other entity (i) claiming any alleged violation by the Seller of any Environmental Law (as hereinafter defined) applicable to the Property, (ii) claiming any alleged failure by Seller to have any license, permit or other approval required under Environmental Laws applicable to the Property or (iii) claiming any Release (as hereinafter defined) in, upon or under the Property. For the purpose of this Agreement, (x) "Environmental Laws" means all laws, regulations, orders and judgments of any governmental authority relating to the environment or to emissions, discharges or releases of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic, radioactive or hazardous materials, substances or wastes into the environment, including without limitation ambient air, surface water, groundwater or land, or otherwise relating to the presence, use, treatment, storage, manufacture, transportation, disposal or release of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic, radioactive or hazardous materials, substances or wastes or the clean-up or other remediation thereof; (y) "Release" means the treatment, storage, recycling, transportation, disposal or release of Hazardous Substances; and (z) "Hazardous Substances" means any asbestos and any substance containing asbestos, polychlorinated biphenyls, petroleum and its derivatives and by- products, explosives, radioactive materials, chemicals known to cause cancer or reproductive toxicity and pollutants, effluents, contaminants, emissions and other substances included in the definitions of hazardous or toxic wastes, materials or substances under any Environmental Laws in such concentrations that remediation or other response is required under Environmental Laws. 3.3 Survival. The provisions of this Article III shall survive the delivery of -------- the Deed. ARTICLE IV Title and Condition ------------------- 4.1. Condition of the Property. At the Closing, the Seller shall deliver to ------------------------- the Buyer full possession of the Property, free of all tenants and occupants and free of all personal property, refuse and Hazardous Substances which were not present on or under the Property as of August 15, 2000. By taking title at the Closing, the Buyer acknowledges that this condition has been met and has no further rights under this Section. 4 4.2. Title. At the Closing, Seller shall convey to the Buyer (or to a nominee ----- designated by written notice to the Seller at least three days before the Closing), by a good and sufficient quitclaim deed (the "Deed"), good record and marketable title to the Property and all of Seller's right, title and interest in and to the Discontinued Road, free of (i) all Liens (as hereinafter defined) and (ii) those Encumbrances (as hereinafter defined) which were not of record at the Registry as of August 15, 2000. For the purpose of this Agreement, (x) "Liens" shall mean any attachments, lis pendens, options, mortgages, liens, security interests, pledges and other monetary encumbrances (excluding liens for real estate taxes for the then current fiscal tax year that are not due and payable and liens for municipal betterments assessed after the date of this Agreement), and (y) "Encumbrances" shall mean any easements, rights-of-way, restrictions of record at the Registry, covenants running with the land, reservations of real property interests and other encumbrances of record at the Registry, which, in Seller's reasonable judgment, will materially restrict or interfere with the construction and development of buildings containing floor area of 900,000 square feet and necessary associated driveways and roads, facilities for parking, drainage, utilities and services, and other associated improvements at the Property. The Deed shall include (x) the conveyance by the Seller to the Buyer of the Appurtenant Rights and Interests in accordance with Section 1.2 of this Agreement and (y) a release and disclaimer by the Seller of any right of the Seller to use the Discontinued Road. 4.3. Buyer's Inspections. Until the Closing, the Seller shall give the Buyer ------------------- and its employees, agents, attorneys, engineers, architects, contractors and lenders full access to the Property. The Buyer shall have the right to perform, at its expense, such tests, inspections and surveys, including without limitation soil, subsurface and groundwater tests, as the Buyer may determine are necessary to evaluate the title and condition of the Property, its compliance with laws and its suitability for development. 4.4. Defects. If, at the Closing, (a) the condition of the Property or the ------- Discontinued Road fails to conform to the requirements set forth in Section 4.1 of this Agreement, or (b) the title to the Property or the Discontinued Road fails to conform to the requirements set forth in Section 4.2 of this Agreement, then the Seller shall use reasonable efforts to make the condition of, and title to, the Property and the Discontinued Road conform to such requirements (provided, however, the Seller shall have no obligation to expend more than $50,000, excluding monetary Liens, in connection with such reasonable efforts), and the date of the Closing shall be postponed for a period of 30 days. During such period, in addition to, and not in limitation of, the Seller's obligations under the immediately preceding sentence, the Buyer shall have the right to take such actions on behalf of the Seller as are necessary to cure any failure of title to the Property or the Discontinued Road to conform to such requirements, and the Seller shall reimburse the Buyer, within ten days after written demand, for any sums expended by the Buyer (including without limitation reasonable attorneys fees) in its efforts to cure such non-conformity, up to but not exceeding $50,000 (excluding monetary Liens). If, at such postponed Closing, the Seller has failed to reimburse the Buyer for any such sums, the Buyer shall have the right to receive such reimbursement as a credit against the Purchase Price. If, at such postponed Closing, the condition of, or title to, the Property or the Discontinued Road fail to conform to such requirements, the Buyer may terminate this Agreement by written notice 5 to the Seller. The Buyer shall have the option, at either the original or postponed Closing, to accept such condition of, or title to, the Property and the Discontinued Road as the Seller can then deliver, in which case the Buyer shall pay the Closing Payment to the Seller without deductions other than the adjustments set forth in Sections 2.3 and 4.5 and this Section 4.4, and the Seller shall deliver the Conveyance Documents to the Buyer. Nothing in this Agreement shall give the Buyer the right to terminate this Agreement and obtain the right to a return of the Deposit by reason of zoning, permits (other than permits which are restrictions recorded at the Registry, covenants running with the land or other encumbrances of record at the Registry) or other issues not related to the title to the Property and the Discontinued Road. Without limiting the generality of the immediately preceding sentence, conditions of the Property affecting the cost of construction or permits and regulations and codes which increase the cost of development, reduce the desired size of the development or affect the siting of improvements on the Property do no constitute a basis for the return of the Deposit under this Agreement or otherwise. 4.5. Use of Purchase Price to Clear Title. If any failure of the condition of, ------------------------------------ or title to, the Property or the Discontinued Road to conform to the requirements of Section 4.2 can be cured by the payment of money to the holder of any monetary Lien, the Buyer shall have the right, at either the original or the postponed Closing, to cure such defect, and any amounts expended in such cure shall be credited against the Purchase Price. ARTICLE V Closing ------- 5.1. Time and Place. The consummation of the transactions contemplated in this -------------- Agreement (the "Closing") shall take place at 10:00 a.m. on October 30, 2000 (subject to any postponement under Section 4.4 of this Agreement), at the offices of Testa, Hurwitz & Thibeault, LLP, 125 High Street, Boston, Massachusetts, or at such other location as the Buyer shall designate by written notice to the Seller. 5.2. Conveyance Documents. At the Closing, the Seller shall, at its expense, -------------------- deliver the following documents (the "Conveyance Documents"): (i) The Deed, duly executed and acknowledged by the record owner(s) of the Property and the Discontinued Road and in recordable form (or in form appropriate for registration with respect to any registered land). (ii) A good and sufficient release deed, duly executed and acknowledged by the record owner(s) of Lots 2 and 4 shown on the Plan and in recordable form (or in form appropriate for registration with respect to any registered land), conveying to the Buyer all of such record owners' right, title and interest in and to the Discontinued Road, including the release and disclaimer of any right of such record owners' to use the Discontinued Road. 6 (iii) If the record owner of the Property, the Discontinued Road or said Lots 2 or 4 (or the general partner of any such record owner which is a limited partnership) is a limited liability company, a certificate issued by the Secretary of State of The Commonwealth of Massachusetts evidencing the legal existence and good standing of such limited liability company and the identity of the Manager of such limited liability company or the person authorized to execute documents related to real property on behalf of such limited liability company, which Manager or person shall execute all Conveyance Documents on behalf of such limited liability company. (iv) If the record owner of the Property, the Discontinued Road or said Lots 2 or 4 is a limited partnership, a certificate issued by the Secretary of State of The Commonwealth of Massachusetts evidencing the legal existence and good standing of such limited partnership and the identity of the general partner of such limited partnership, which general partner shall execute all Conveyance Documents on behalf of such limited partnership. (v) Such other executed instruments of transfer and evidence of authority as the Buyer's title insurance company may reasonably require to convey to, and vest in, the Buyer title to (x) the Property and the Discontinued Road conforming to the requirements of Section 4.2 of this Agreement and (y) the other Appurtenant Rights and Interests in accordance with Section 1.2 of this Agreement. (vi) An Affidavit of Non-Foreign Status under Section 1445 of the Internal Revenue Code, duly executed and acknowledged by the Seller. (vii) An affidavit and indemnity, duly executed and acknowledged by the Seller, sufficient in form and substance to induce the Buyer's title insurance company to remove from Schedule B of the Buyer's title insurance policy the printed standard exceptions for (1) rights and claims of persons in possession of the Property and (2) liens for services, labor or materials furnished before the Closing not shown on the public records. (viii) A ground lease in the form attached to this Agreement as Exhibit B, duly executed by record owners of Lots 2 and 4 shown on the Plan. (ix) A written amendment (the "Amendment") of the Reciprocal Easement Agreement dated November 28, 1998, between Vesper Park, LLC, a Massachusetts limited liability company, and Dutton Associates, Limited Partnership, a Delaware limited partnership, recorded with the Registry at Book 10288, Page 144 (the "Reciprocal Easement Agreement"), which amendment shall (i) be executed and acknowledged by record owners of the Property, the Discontinued Road and said Lots 2 and 4 shown on the Plan, (ii) be in recordable form, and (iii) amend the Reciprocal Easement Agreement to provide that (x) the term "Vesper Parcels", as used in the Reciprocal Easement Agreement, shall mean Lot 5 shown on the Plan only, (y) the 7 term "Entire Premises" shall mean said Lots 2, 4 and 5 only, and (z) the term "common roadways" shall mean those portions of Potash Hill Road excluding the Discontinued Road. (viii) A discharge of the Mortgage and Security Agreement from Francis D. Burke, Trustee of Vesper Properties, I Trust to Elkin McCallum, dated September 28, 1998 and recorded with the Registry at Book 9589, Page 303, which discharge shall be executed and acknowledged by the holder of record of such Mortgage and Security Agreement and in recordable form. (ix) An estoppel certificate, executed and acknowledged by the record owners of Lots 2 and 4 shown on the Plan and in recordable form, stating that the Reciprocal Easement Agreement is unmodified (except for the modifications made under the Amendment) and in full force and effect and that, to the best of the knowledge of each such record owner, no "Owner" (as defined in the Reciprocal Easement Agreement") is in default in any respect under the Reciprocal Easement Agreement. (x) Such other instruments as the Buyer or its counsel may reasonably request to consummate the transactions contemplated in this Agreement. 5.3. Further Assurances. After the Closing, the Seller shall execute or ------------------ provide any instruments reasonably requested by the Buyer, or on behalf of the Buyer, and do or cause to be done all things necessary to consummate, confirm or validate any transactions contemplated by this Agreement. Without limiting the generality of the immediately preceding sentence, the Seller shall use reasonable efforts, before and after the Closing, to obtain from any holders of mortgages encumbering any portion of Lot 2 or 4 shown on the Plan and from the lessees under ground leases of any portion of said Lot 2 or 4 (i) a written confirmation and acknowledgement, in recordable form, that such mortgagee and/or lessee consents and agrees to the Amendment and (ii) a written release to the Buyer or its nominee of all of such mortgagee's and/or lessee's right, title and interest in and to the Discontinued Road, including the release and disclaimer of any right of such mortgagee and/or lessee to use the Discontinued Road. The provisions of this Section 5.3 shall survive the delivery of the Deed. ARTICLE VI Defaults -------- 6.1. Buyer's Defaults. Subject to the Buyer's right to terminate this ---------------- Agreement under Section 4.4 of this Agreement, if the Buyer fails to purchase the Property for any reason (or no reason) at the Closing, the Seller shall have the right to terminate this Agreement by written notice to the Buyer and retain the Deposit as liquidated damages, which shall be the Seller's exclusive remedy at law and in equity. If the Seller so terminates this Agreement, the Buyer and the Seller shall be released from all further obligations and liabilities under this Agreement. 8 6.2. Seller's Defaults. If any of the Seller's representations or warranties ----------------- in this Agreement are incorrect or incomplete in any material respect, or if the Seller fails to perform any of its obligations under this Agreement, the Seller shall be in default, and the Buyer shall have the right to enforce any rights and remedies it may have at law or in equity. ARTICLE VII Miscellaneous ------------- 7.1. Assignment. The Buyer shall be entitled to assign this Agreement, in ---------- which event any such assignee shall replace and stand in the place of the Buyer under this Agreement, and any such assignor shall thereafter have no further obligation or liability under this Agreement. 7.2. Time. Time is of the essence of this Agreement. Whenever in this ---- Agreement the expiration of a specified number of days or other period of time gives rise to certain rights or obligations, if the expiration of the applicable period falls on a Saturday, Sunday or legal holiday, such expiration shall automatically be deemed extended to the next business day. 7.3. Successors and Assigns. This Agreement shall bind and inure to the ---------------------- benefit of the respective successors and assigns of the Buyer and the Seller. 7.4. Entire Agreement. This Agreement contains the entire agreement between ---------------- the Buyer and the Seller with respect to the transactions contemplated in this Agreement and supersedes all prior negotiations, agreements and representations between the Buyer and the Seller. The Letter of Intent dated August 15, 2000, between the Buyer and the Seller shall have no further force or effect. 7.5. Counterparts. This Agreement may be executed in any number of original ------------ counterparts, all of which evidence only one agreement, but only one of which need be produced for any purpose. 7.6. Modifications. This Agreement may not be modified in any respect except ------------- by a written agreement executed by the Buyer and the Seller. However, any consent, waiver, approval or authorization shall be effective if signed by the party granting or making such consent, waiver, approval or authorization. 7.7. Notices. Any notice, demand, consent, authorization or other ------- communication shall be effective only if in writing, signed by the party giving such notice, demand, consent, authorization or communication, and delivered by hand or sent by express delivery service or by registered or certified mail of the United States Postal Service, return receipt requested, addressed to the other party as follows: If to the Buyer: Sycamore Networks, Inc. 150 Apollo Drive Chelmsford, MA 01879 9 Attention: Mr. Peter Hamil With a copy concurrently Kevin M. McKenna, Esq. delivered to: Testa, Hurwitz & Thibeault, LLP 125 High Street Boston, MA 02110 If to the Seller: Vesper Park, LLC c/o Joan Fabrics Corporation 100 Vesper Park Tyngsborough, MA 01879 Attention: Elkin McCallum With a copy concurrently Paul Buffum, Esq. delivered to: c/o Joan Fabrics Corporation 100 Vesper Park Tyngsborough, MA 01879 Either party may change its designated address or addressee by written notice to the other party. Unless otherwise specified, notices shall be deemed given on the earlier to occur of (i) receipt, (ii) refusal of acceptance or (iii) the third day after being mailed. 7.8. Governing Law. This Agreement shall be governed by, and construed and ------------- enforced in accordance with, the laws of The Commonwealth of Massachusetts. 7.9. Severability. The invalidation or unenforceability in any particular ------------ circumstances of any provision of this Agreement shall in no way affect any of the other provisions of this Agreement, which shall remain in effect. 7.10. No Partnership. This Agreement shall not be construed as in any way -------------- establishing a partnership, joint venture, express or implied agency or employer-employee relationship between the Buyer and the Seller. 7.11. No Third-Party Beneficiaries. This Agreement is for the sole benefit of ---------------------------- the Buyer and the Seller and their respective successors and permitted assigns, and no other person or entity shall be entitled to rely on or receive any benefit from this Agreement. 7.12. No Waiver. No express or implied consent to, or waiver of, a failure of --------- any representation or warranty or a breach of any covenant shall be effective unless in writing, and no such consent or waiver in one instance shall be construed as a consent or waiver in any other instance or with respect to any other representation, warranty or covenant. 7.13. Remedies. All of the rights and remedies under this Agreement and the -------- Conveyance Documents shall be distinct, separate and cumulative, and the exercise of any such right or remedy shall not be in exclusion of, or a waiver of, any other right or remedy. 10 7.14 Brokers. The Seller and the Buyer each represent and warrant to the other ------- that it has not dealt with any broker in connection with the purchase of the Property by the Buyer, other than Taupier Real Estate, Inc. and Paul Johnson Real Estate Partners. The Seller shall pay any fee or commission due to Taupier Real Estate, Inc., and the Buyer shall pay any fee or commission due to Paul Johnson Real Estate Partners, in connection with the purchase of the Property by the Buyer. 7.15 Merger. The acceptance of the Deed and the other Conveyance Documents by ------ the Buyer or its nominee shall be deemed to be full performance and discharge of every agreement and obligation under this Agreement, except for any obligations under provisions of this Agreement which, by their express terms, survive the delivery of the Deed. 11 The Buyer and the Seller execute this Agreement under seal as of October ____, 2000. BUYER: SELLER: SYCAMORE NETWORKS, INC. VESPER PARK, LLC By:________________________________________ By:_________________________________________ Name: Name: Elkin McCallum Title: Chief Financial Officer and Vice Title: Manager President of Administration and Finance
Escrow Agent's Agreement ------------------------ The Escrow Agent is a party to this Agreement only as to those provisions relating to the Deposit, and, by executing this Agreement, the Escrow Agent agrees to hold, disburse and apply the Deposit according to the terms of this Agreement. Goulston & Storrs, P.C. By:______________________________ Name: Title: 12 Exhibit A --------- ESCROW AGENT PROTECTIVE PROVISIONS To induce Goulston & Storrs, P.C. (the "Escrow Agent") to act as the escrow agent for the Deposit under the terms and conditions of Section 2.2 of this Agreement, the Seller and the Buyer (together, the "Transaction Parties") and the Escrow Agent hereby agree as follows: 1. This Exhibit A and Section 2.2 of this Agreement (together, this "Escrow Agreement") set forth all of the Escrow Agent's duties with respect to escrow, release and disbursement of the Deposit. The Escrow Agent shall not be obligated to take any action which it is not expressly required to take under this Escrow Agreement or which, in Escrow Agent's reasonable judgment, would subject it to any liability, cost or expense. 2. In taking any action whatsoever hereunder, the Escrow Agent shall have the right, without incurring any responsibility or liability to any of the Transaction Parties therefor, to rely upon any notice or other document believed by the Escrow Agent to be genuine or to have been signed by a duly authorized person(s), or upon any evidence deemed by him to be sufficient, without making any investigation or determination as to the genuineness thereof, the truth or authority of any signatory thereon or the veracity of any such evidence. The Escrow Agent may consult with counsel in connection with its duties hereunder and shall not be liable or responsible for any act taken, suffered or permitted on advice of such counsel. 3. In the event of any dispute among the Transaction Parties regarding the release of the Deposit, or in the event the Escrow Agent receives conflicting demands or instructions with respect thereto, the Escrow Agent may, without any liability therefor, refuse to release the Deposit, or refuse to comply with such conflicting demands or instructions, until all such disputes and conflicts are resolved to the Escrow Agent's satisfaction. Alternatively, in any such event, the Escrow Agent may deposit the Deposit with a court of competent jurisdiction in The Commonwealth of Massachusetts and commence an action (in the nature of interpleader or otherwise) joining all of the interested Transaction Parties to determine their rights with respect thereto, whereupon the Escrow Agent shall have no further obligations hereunder. Each of the Transaction Parties hereby consents to the jurisdiction of any such court in connection with any such action. 4. In the event that any of the Transaction Parties commences a legal action with respect to the Deposit, the Escrow Agent shall deposit the same with the court in which such suit has been brought, and thereupon the Escrow Agent shall have no further obligations hereunder. 5. The Escrow Agent may resign and be discharged of its duties hereunder by giving thirty (30) days written notice of its desire to do so to each of the Transaction Parties. In such 13 event, the Transaction Parties shall, within thirty (30) days after the date of the Escrow Agent's resignation notice, furnish the Escrow Agent with written instructions for the release of the Deposit to a successor escrow agent; and if the Escrow Agent shall not have received such written instructions within such thirty (30) day period, the Escrow Agent may petition any court of competent jurisdiction in The Commonwealth of Massachusetts for the appointment of a successor escrow agent, and, upon such appointment, the Escrow Agent shall deliver the Deposit to such successor and shall have no further obligations hereunder. 6. The Escrow Agent shall not be liable or responsible for any action or failure to act in connection with this Escrow Agreement or any consequence thereof (including, without limitation, loss of the Deposit) unless such action or failure to act shall be held to constitute gross negligence or intentional misconduct on the part of the Escrow Agent. 7. The Transaction Parties hereby jointly and severally agree to defend, indemnify and hold harmless the Escrow Agent from and against any and all claims, damages, losses, costs, expenses and liability of every kind (including, without limitation, reasonable attorneys' fees) to which the Escrow Agent may be subjected or put arising out of or in connection with this Escrow Agreement (including, without limitation, judgments, damages, costs and expenses incurred in connection with any action or proceeding brought by or against Escrow Agent) except for any claims, damages, losses, costs, expenses and liability which shall have been judicially determined, finally and with no further right of appeal, to have been caused by the gross negligence or intentional misconduct of Escrow Agent. 14 Exhibit B --------- GROUND LEASE [INSERT NAME OF OWNER OF LOT 5], a ____________________ with an address at 10 Elizabeth Drive, Chelmsford, Massachusetts 01824-4111 ("Landlord"), and ___________________ [INSERT NAME(S) OF OWNER(S) OF LOTS 2 AND 4], a ___________________ ("Tenant") with an address at 100 Vesper Executive Park, Tyngsboro, Massachusetts 01879, enter into this Ground Lease (this "Lease") as of ______________, 2000. Preliminary Statement --------------------- Landlord has accepted a deed for the land, together with the improvements thereon, located in Tyngsborough, Middlesex County, Massachusetts, shown as Lot 5 ("Lot 5") on the plan (the "Plan") entitled "Definitive Plan, Vesper Executive Park Subdivision of Land in Tyngsborough, Mass." dated December 11, 1987, revised March 1, 1988, prepared by Dana F. Perkins & Assoc., Inc., recorded in the Middlesex North Registry of Deeds in Plan Book 166 as Plan 53. Tenant is the owner of the land, buildings and other improvements commonly known as ___ and ___ Potash Hill Road [INSERT STREET ADDRESS], Tyngsborough, Massachusetts, shown as Lots 2 and 4 on said Plan (together, Lots 2 and 4"). Landlord wishes to lease to Tenant, on the terms and conditions of this Lease, (i) the structure located on Lot 5 as of the date of this Lease which contains equipment for pumping water (the "Pump House"), (ii) a parcel of land which includes the land on which the Pump House is situated and which extends ten feet in all directions from the outside surface of the exterior walls of the Pump House (the "Leased Land"), and such pumps, pipes, mains, conduits, manholes and other equipment and fixtures associated with the pumping of water through the Pump House to the buildings and other improvements on Lots 2 and 4 as are located on or under Lot 5 as of the date of this Lease (collectively, the "Pumping Equipment"; together with the Pump House and the Leased Land, the "Leased Premises"). Tenant wishes to accept a lease of the Leased Premises on the terms and conditions of this Lease. Agreement --------- In consideration of the mutual covenants in this Lease and for other valuable consideration, the receipt and sufficiency of which Landlord and Tenant hereby acknowledge, Landlord hereby leases to Tenant all of Landlord's rights, title and interests, if any, in and to the Leased Premises, and Tenant hereby accepts such lease from Landlord, on the following terms and conditions: 1. Appurtenant Rights. Tenant shall have the right, appurtenant to the ------------------ Leased Premises, to enter the existing driveway on Lot 5 for the purpose of access to the Leased Premises. 15 2. Term. The term of this Lease shall be 99 years, commencing on the ---- date of this Lease and ending on the day before the ninety-ninth anniversary of such date (the "Term"). 3. Rent. Tenant shall pay to Landlord rent at a rate of one dollar ---- ($1.00) per year of the Term, which rent shall pay to Landlord in one lump sum at the time of the execution of this Lease. 4. Taxes. Tenant shall pay to Landlord all real estate taxes, ----- assessments and betterments levied on, or assessed against, the Leased Premises by any governmental authority with respect to any fiscal tax year, or portion of a fiscal tax year, included in the Term ("Taxes"). If any such governmental authority assesses the Pump House, Pumping Equipment or the Leased Land separately from the remainder of Lot 5, Tenant shall pay, on account of Taxes, the entire amount of such separate assessment. If any such governmental authority does not assess the Leased Land separately from the remainder of Lot 5, Tenant shall pay, on account of Taxes, a fraction of real estate taxes, assessments and betterments levied on, or assessed against Lot 5 by such governmental authority, the numerator of which fraction shall be the area of the Leased Land and the denominator of which fraction shall be the area of Lot 5. Tenant shall not be responsible for paying any real estate taxes, assessments or betterments levied on, or assessed against, any buildings or other improvements on Lot 5 other than the Pump House and Pumping Equipment. If the Term includes only a portion of any fiscal tax year, the Taxes for such fiscal tax year shall be prorated based on the fraction of such fiscal tax year that falls within the Term. Tenant shall make such payments to Landlord, as additional rent, within 30 days after receiving a written invoice stating the amount of such real estate taxes, assessments or betterments. 5. Repairs and Maintenance. Tenant accepts the Leased Premises in its ----------------------- condition as of the date of this Lease, without any express or implied representation or warranty, except as specified in this Lease. Tenant, at its sole expense, either (i) shall perform any repairs, replacements or maintenance necessary to maintain the Leased Premises in good condition and working order and in compliance with all applicable laws or (ii) shall remove the Pump House from the Leased Premises. Tenant's right to remove the Pump House and the Pumping Equipment shall be subject to the Reciprocal Easement Agreement (as hereinafter defined), but, if Tenant removes the Pump House, Tenant shall, at Landlord's request, remove all of the Pumping Equipment, including any Pumping Equipment located underground. Tenant, at its sole expense, shall restore the surface of Lot 5 to its original condition after performing any such repairs, replacements or maintenance or any such removal, and Tenant shall securely cap or close off all abandoned or inactive Pumping Equipment that Landlord permits to remain on Lot 5. If Tenant fails to perform any repairs, replacements, maintenance or removal which Tenant is required to perform under this Section 5, and if such failure continues for more than 30 days after Tenant receives written notice of such failure, then Landlord shall have the right, but not the obligation, to enter the Leased Premises and perform any such repairs, replacements, maintenance or removal at Tenant's expense, and Tenant shall reimburse Landlord for any costs and expenses incurred by Landlord in connection with performing such repairs, replacements, maintenance or removal, within ten days after receiving a written invoice stating the amount of such costs and expenses; provided, however, Landlord shall not remove the Pump House without Tenant's prior written 16 consent, and Landlord shall not remove the Pumping Equipment without Tenant's prior written consent unless Tenant has previously removed the Pump House. 6. Use. Tenant shall use the Leased Property only for the purpose of --- pumping water (and maintaining water pressure) through the Pump House to Lots 2 and 4 (the "Permitted Use") in compliance with all applicable laws. Tenant shall not use the Leased Property or permit the use of the Leased Premises in any manner that constitutes a nuisance. Tenant shall not, nor shall Tenant permit its employees, agents, contractors, invitees, successors or assigns to, produce, generate, keep, maintain, use, store, release or dispose of (into the sewage or waste disposal system or otherwise) any substance which is or may hereafter be classified as a hazardous or toxic wastes, materials or substances under any federal, state or local laws, rules and regulations, including without limitation 42 U.S.C. Section 6901 et seq., 42 U.S.C. Section 9601 et seq., 42 U.S.C. Section 2601 et seq., 49 U.S.C. Section 1802 et seq. and Massachusetts General Laws, Chapter 21E and the rules and regulation promulgated thereunder, as such laws, rules and regulations may be amended from time to time (collectively, "Environmental Laws"), in, on, at, under, within or from the Leased Premises or Lot 5, except for de minimis amounts of such substances as are customarily used in connection with the use, operation, maintenance and repair of the Pump House and Pumping Equipment for the Permitted Use, and then only in compliance with all applicable Environmental Laws. Tenant shall immediately notify Landlord of any incident in, on or about the Leased Premises of which Tenant becomes aware that would require the filing of a notice under any Environmental Laws. 7. Access. Landlord shall have the right to enter upon the Leased Land ------ at any time and to enter the Pump House upon reasonable advance notice to Tenant, except in an emergency, for the purpose of inspecting the Pump House and the Pumping Equipment and performing any repairs to, or any replacements, maintenance or removal of, the Pump House or Pumping Equipment which Landlord is permitted to do under this Lease. 8. Indemnity and Waiver. Tenant shall indemnify and hold harmless -------------------- Landlord, its successors and assigns, its mortgagees and any other persons or business organizations holding title to or any interest in any portion of Lot 5 from time to time, and their respective directors, officers, trustees, managers, members and employees (collectively, "Indemnified Parties") from all claims, liabilities, damages, losses, costs and expenses arising out of (i) the use, operation, inspection, repair, replacement, maintenance or removal of the Pump House or the Pumping Equipment, (ii) the presence and activities of Tenant's agents, employees, contractors or invitees on the Leased Land or any other portion of Lot 5, (iii) the negligence or willful misconduct of the Tenant or its agents, employees, contractors or invitees on or about Lot 5, or (iv) any default by Tenant in the payment or performance of its obligations under this Lease, except to the extent such claims, liabilities, damages, losses, costs or expenses arise out of the negligence or willful misconduct of the Indemnified Parties. Landlord shall not be liable to Tenant for any claim, liability, damage, loss, cost or expense, whether or not caused by the negligence of Landlord or any Indemnified Party, to the extent that such claim, liability, damage, loss, cost or expense is covered under any insurance carried by Tenant or would have been covered under any insurance which Tenant is required to carry under Section 9 of this Lease. 17 9. Insurance. During the Term, Tenant, at its sole expense, shall obtain --------- and carry: (i) a policy of commercial general liability insurance, in an amount not less than $2,000,000.00 per occurrence (or such greater reasonable amount as may be required by Landlord's mortgagees or as may be carried by prudent owners of property used for offices and research and development from time to time, provided that Landlord has given written notice of such greater amount to Tenant), for claims based on bodily injury (including death), personal injury and property damage relating to the Premises (including without limitation coverage for all claims, liabilities, damages, losses, costs and expenses for bodily injury, death, personal injury and property damage against which Tenant is required to indemnify and hold harmless the Indemnified Parties under Section 8 of this Lease), naming as additional insureds Landlord and the holder(s) of any mortgage, and the lessor under any ground lease, of Lot 5 or any portion of, or interest in, Lot 5; and (ii) a policy of insurance covering the Pump House and Pumping Equipment for all direct risk of physical loss, on an occurrence basis, in an amount and value not less than their full replacement cost, which policy shall provide, by its terms or under an endorsement, a waiver by the insurer of any rights of subrogation against the Indemnified Parties. Any such policies shall be written by an insurer qualified to do business and in good standing in Massachusetts and shall provide that it shall not be canceled or amended in any manner that reduces the coverage afforded to Landlord without written notice to Landlord at least 30 days in advance. Upon request, Tenant shall each promptly deliver to Landlord certificates evidencing such policies. 10. Eminent Domain. In the event of any permanent appropriation of all or -------------- any portion of the Leased Premises by eminent domain or a permanent condemnation of all or any portion of the Leased Premises for any public or quasi-public use, this Lease shall terminate as of the date of such appropriation or condemnation. Landlord expressly reserves, and Tenant hereby assigns to Landlord, all rights to any award or compensation relating to any such appropriation or condemnation except any award or compensation for damage to the Pump House or Pumping Equipment. 11. Assignments and Subleases. Tenant shall sublet all or any portion of ------------------------- the Leased Premises without in each instance obtaining Landlord's prior written consent, which consent Landlord may withhold or condition in its sole discretion. Tenant shall not assign this Lease, including without limitation an assignment by operation of law and any mortgage or pledge of any interest in this Lease, without in each instance obtaining Landlord's prior written consent, which consent Landlord may withhold or conditioned in its sole discretion; provided, however, that Tenant may assign this Lease, without Landlord's consent, to the transferee or mortgagee in connection with the transfer or mortgage of fee simple title to either or both of Lots 2 and 4 (an "Appurtenant Transfer"). If Tenant transfers fee simple title to either or both of Lots 2 and 4, Tenant shall assign its rights, title and interest in and to this Lease to such transferee. In the event of any such conveyance or mortgage of fee simple title to one, but not both, of Lots 2 and 4, the grantee of such conveyance or the mortgagee holding such mortgage, as the case may be, shall 18 hold its rights, title and interests under this Lease in common with the person or business organization holding fee simple title to the other such lot. Any such assignment or sublease without Landlord's prior written consent (except in connection with an Appurtenant Transfer) shall be void. 12. Joint and Several Obligations. If at any time more than one person or ----------------------------- business organization holds the rights, title and interest of Tenant under this Lease, the obligations of such persons or business organizations under this Lease shall be joint and several. 13. Default. If Tenant fails to pay or perform its obligations under this ------- Lease and such failure continues for more than 60 days after Tenant receives written notice of such failure (or such longer period as shall be necessary to cure any such failure that does not involve the payment of money, provided that Tenant commences such cure within 30 days after receiving such notice and pursues such cure to completion with diligence and continuity), Landlord shall have the right to terminate this Lease by written notice to Tenant; provided, however, if Tenant shall commence such cure within 30 days after receiving such notice of termination and shall pursue such cure to completion with diligence and continuity within 60 days after receiving such notice, Landlord's exercise of such right to terminate this Lease pursuant to such notice shall be void. Irrespective of whether Landlord exercises such right to terminate this Lease, Landlord may proceed to protect and enforce its rights and remedies under this Lease, at law or in equity, including without limitation an action seeking specific performance of any agreement in this Lease or an injunction against a violation of any of the terms of this Lease. No failure or delay by Landlord in exercising any right, power or remedy under this Lease, at law or in equity shall operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise of such right, power or remedy or the exercise of any other right, power or remedy under this Lease, at law or in equity. The remedies provided under this Section 13 or elsewhere in this Lease are cumulative and not exclusive of any remedies provided by law. 14. Quiet Enjoyment. If Tenant pays and performs fully and punctually all --------------- of its obligations under this Lease, Tenant shall hold its rights, title and interests in and to the Leased Premises for the Term free of claims that any party holds any interest superior to this Lease in, the Leased Premises by, through or under Landlord. Tenant accepts the terms of the immediately preceding sentence in lieu of any express or implied covenant of quiet enjoyment, and Tenant waives and disclaims the benefit of any such covenant of quiet enjoyment. Landlord and Tenant acknowledge that this Lease is subject and subordinate to the Reciprocal Easement Agreement dated November 28, 1998, between Vesper Park, LLC, a Massachusetts limited liability company, and Dutton Associates, Limited Partnership, a Delaware limited partnership, recorded with Middlesex North Registry of Deeds at Book 10288, Page 144. Landlord hereby waives its right, under said Reciprocal Easement Agreement, to use the Pump House and Pumping Equipment for the benefit of Lots 5 through 17 shown on the Plan. 14. Notices. Any notice, request or demand under this Lease shall be ------- shall be in writing and shall be effective when delivered by hand, upon refusal of any delivery, two business days after being sent by registered or certified mail, postage prepaid, return receipt requested, or 19 the day after when sent by a recognized overnight express service, with postage prepaid. Any notice, request or demand by Tenant to Landlord shall be addressed or delivered to Tenant at ____________________, with a copy to Testa, Hurwitz and Thibeault, LLP, High Street Tower, 125 High Street, Boston, Massachusetts 02110, Attention: Real Estate Department, until otherwise directed in writing by Landlord. Any notice or demand by Landlord to Tenant shall be addressed or delivered to Landlord at 100 Vesper Executive Park, Tyngsboro, Massachusetts 01879, unless otherwise directed in writing by Landlord. 15. Binding Agreement. This Lease shall bind and inure to the benefit of ----------------- Landlord, its successors and assigns, and Tenant and its successors or assigns in connection with assignments and subleases permitted under the terms of this Lease. 16. Entire Agreement. This Lease contains the entire agreement of Landlord ---------------- and Tenant concerning the Leased Premises and the other subjects addressed in this Lease. 17. Written Modifications. This Lease may be amended, and the observance --------------------- or performance of any obligation under this Lease may be waived (either retroactively or proactively), with (and only with) the written consent of Landlord and Tenant. Any waiver shall be effective only in the specific instance and for the specific purpose for which such waiver is given. 18. Partial Invalidity. If any provision of this Lease (or the application ------------------ of any provision of this Lease to any person or circumstances) shall be held invalid or unenforceable to any extent, the remainder of this Lease (or the application of such provision to other persons or circumstances) shall not be affected, and each provision of this Lease shall be valid and enforceable to the fullest extent permitted by law. 19. Governing Law. This Lease shall be governed, construed and interpreted ------------- in accordance with the laws of The Commonwealth of Massachusetts. 20. Counterparts. This Lease may be executed in any number of ------------ counterparts, all of which taken together shall constitute one and the same instrument, and Landlord and Tenant may each may execute this Lease by signing any such counterpart. 21. Costs of Enforcement. In case of any litigation by Landlord and Tenant -------------------- concerning their respective rights or obligations under this Lease, the unsuccessful party shall pay all reasonable costs and expenses, including reasonable attorney's fees, incurred by the successful party in connection with the enforcement of any such obligations. 22. Limitations on Liability. Tenant shall neither assert nor seek to ------------------------ enforce any claim for breach of this Lease by Landlord against Landlord's assets other than Landlord's interest in Lot 5, and Tenant shall look solely to such interest for the satisfaction of any liability of Landlord under this Lease. Neither Landlord, nor any successor holding Landlord's interests under this Lease, nor any trustee or beneficiary of any trust holding Landlord's interests under this Lease, nor any member, manager, partner, director, stockholder or employee of Landlord shall ever be 20 personally liable to respond in monetary damages from assets other than Landlord's interest in Lot 5. The foregoing provisions of this Section 22 shall not limit any right that Tenant might otherwise have to obtain injunctive relief against Landlord or Landlord's successors holding Landlord's interests under this Lease. In no event shall Tenant ever be liable for any indirect or consequential damages or loss of profits. Landlord and Tenant execute this Lease as a sealed instrument. TENANT: LANDLORD: [NAME] [NAME] By:_________________________________ By:__________________________________ Name: Name: Title: President/Vice President Title: President/Vice President By:_________________________________ By:__________________________________ Name: Name: Title: Treasurer/Assistant Treasurer Title: Treasurer/Assistant Treasurer 21 EX-27 3 0003.txt FINANCIAL DATA SCHEDULE
5 3-MOS JUL-31-2001 AUG-01-2000 OCT-28-2000 375,994 741,279 40,632 401 53,563 1,226,064 84,220 13,167 1,724,468 120,366 0 0 0 273 1,602,979 1,724,468 120,448 120,448 64,139 64,139 104,842 0 22,329 (26,204) 0 (26,204) 0 0 0 (26,204) (0.11) (0.11)
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