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 APRIL 24, 2004

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 000-27273

SYCAMORE NETWORKS, INC.

(Exact name of registrant as specified in its charter)

Delaware	04-3410558
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

220 Mill Road

Chelmsford, Massachusetts 01824

(Address of principal executive offices)

(Zip code)

(978) 250-2900

(Registrant’s telephone number, including area code)

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), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes x No ¨.

The number of shares outstanding of the Registrant’s Common Stock as of April 30, 2004 was 273,173,031.

Sycamore Networks, Inc.

Index

		Page No.
Part I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (unaudited)	3
	Consolidated Balance Sheets as of April 24, 2004 and July 31, 2003	3
	Consolidated Statements of Operations for the three months and nine months ended April 24, 2004 and April 26, 2003	4
	Consolidated Statements of Cash Flows for the nine months ended April 24, 2004 and April 26, 2003	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	32
Item 4.	Controls and Procedures	32
Part II.	OTHER INFORMATION	33
Item 1.	Legal Proceedings	33
Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	34
Item 6.	Exhibits and Reports on Form 8-K	35
Signature		36
Exhibit Index		37

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Part I. Financial Information

Item 1. Financial Statements

Sycamore Networks, Inc.

Consolidated Balance Sheets

(in thousands, except par value)

(unaudited)

	April 24, 2004			July 31, 2003
Assets
Current assets:
Cash and cash equivalents	$	222,721		$	250,595
Short-term investments		384,812			421,784
Accounts receivable, net of allowance for doubtful accounts of $4,132 and $4,184 at April 24, 2004 and July 31, 2003, respectively		14,264			10,769
Inventories		4,017			5,117
Prepaids and other current assets		3,752			3,680
Total current assets		629,566			691,945
Property and equipment, net		10,047			14,589
Long-term investments		358,095			323,204
Other assets		2,375			2,890
Total assets	$	1,000,083		$	1,032,628
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	2,288		$	3,475
Accrued compensation		2,610			3,545
Accrued warranty		3,596			4,651
Accrued expenses		3,531			4,203
Accrued restructuring costs		14,299			19,086
Deferred revenue		6,238			2,677
Other current liabilities		3,163			2,476
Total current liabilities		35,725			40,113
Deferred revenue		672			—
Total liabilities		36,397			40,113
Stockholders’ equity:
Preferred stock, $.01 par value; 5,000 shares authorized; none issued or outstanding		—			—
Common stock, $.001 par value; 2,500,000 shares authorized; 273,163 and 272,099 shares issued at April 24, 2004 and July 31, 2003, respectively		273			272
Additional paid-in capital		1,738,265			1,733,476
Accumulated deficit		(771,941	)		(736,192	)
Deferred compensation		(2,418	)		(6,822	)
Treasury stock, at cost, 0 and 147 shares held at April 24, 2004 and July 31, 2003, respectively		—			(11	)
Accumulated other comprehensive income (loss)		(493	)		1,792
Total stockholders’ equity		963,686			992,515
Total liabilities and stockholders’ equity	$	1,000,083		$	1,032,628

The accompanying notes are an integral part of the consolidated financial statements.

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Sycamore Networks, Inc.

Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended						Nine Months Ended
	April 24, 2004			April 26, 2003			April 24, 2004			April 26, 2003
Revenue:
Product	$	11,355		$	7,696		$	21,184		$	17,997
Service		3,363			2,905			8,850			9,367
Total revenue		14,718			10,601			30,034			27,364
Cost of revenue:
Product		7,649			6,071			13,409			16,786
Service		2,074			2,631			6,284			9,646
Stock-based compensation:
Product		77			170			233			508
Service		99			171			300			546
Total cost of revenue		9,899			9,043			20,226			27,486
Gross profit (loss)		4,819			1,558			9,808			(122	)
Operating expenses:
Research and development		11,257			12,679			34,306			40,038
Sales and marketing		4,896			4,884			13,652			14,896
General and administrative		1,642			1,852			5,092			5,261
Stock-based compensation:
Research and development		520			844			2,310			2,562
Sales and marketing		253			425			790			1,553
General and administrative		309			387			1,055			1,305
Restructuring charges and related asset impairments		—			(2,193	)		—			(2,193	)
Total operating expenses		18,877			18,878			57,205			63,422
Loss from operations		(14,058	)		(17,320	)		(47,397	)		(63,544	)
Interest and other income, net		3,485			5,426			11,648			18,171
Loss before income taxes		(10,573	)		(11,894	)		(35,749	)		(45,373	)
Provision for income taxes		—			—			—			—
Net loss	$	(10,573	)	$	(11,894	)	$	(35,749	)	$	(45,373	)
Basic and diluted net loss per share	$	(0.04	)	$	(0.04	)	$	(0.13	)	$	(0.17	)
Weighted-average shares used in computing basic and diluted net loss per share		272,652			266,638			271,642			264,640

The accompanying notes are an integral part of the consolidated financial statements.

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Sycamore Networks, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Nine Months Ended
	April 24, 2004			April 26, 2003
Cash flows from operating activities:
Net loss	$	(35,749	)	$	(45,373	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		8,005			17,255
Stock-based compensation		4,688			6,474
Restructuring charges and related asset impairment		—			1,000
Provision for doubtful accounts		(52	)		—
Changes in operating assets and liabilities:
Accounts receivable		(3,443	)		6,912
Inventories		1,100			6,012
Prepaids and other current assets		(72	)		(1,120	)
Deferred revenue		4,233			(990	)
Accounts payable		(1,187	)		(2,932	)
Accrued expenses and other current liabilities		(1,975	)		(5,835	)
Accrued restructuring costs		(4,787	)		(23,262	)
Net cash used in operating activities		(29,239	)		(41,859	)
Cash flows from investing activities:
Purchases of property and equipment		(3,463	)		(2,584	)
Purchases of investments		(618,901	)		(300,503	)
Maturities of investments		618,697			403,406
Decrease in other assets		515			4,429
Net cash provided by (used in) investing activities		(3,152	)		104,748
Cash flows from financing activities:
Proceeds from issuance of common stock		4,542			2,049
Purchase of treasury stock		(25	)		(152	)
Net cash provided by financing activities		4,517			1,897
Net increase (decrease) in cash and cash equivalents		(27,874	)		64,786
Cash and cash equivalents, beginning of period		250,595			172,658
Cash and cash equivalents, end of period	$	222,721		$	237,444

The accompanying notes are an integral part of the consolidated financial statements.

5

Sycamore Networks, Inc.

Notes To Consolidated Financial Statements

1. Description of Business

Sycamore Networks, Inc. (the “Company”) was incorporated in Delaware on February 17, 1998. The Company develops and markets optical networking products that are designed to enable telecommunications service providers to cost-effectively and easily transition their existing fiber optic network into an infrastructure that can provision, manage and deliver economic, high-bandwidth services to their customers.

2. Basis of Presentation

The accompanying financial data as of April 24, 2004 and for the three and nine months ended April 24, 2004 and April 26, 2003 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 accounting principles generally accepted in the United States of America 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, 2003.

In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present a fair statement of financial position as of April 24, 2004 and results of operations and cash flows for the periods ended April 24, 2004 and April 26, 2003 have been made. The results of operations and cash flows for the periods ended April 24, 2004 are not necessarily indicative of the operating results and cash flows for the full fiscal year or any future periods.

3. Stock-Based Compensation

The Company accounts for stock-based employee compensation arrangements in accordance with the intrinsic value provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations and complies with the disclosure provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” (“SFAS 123”), as amended by SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure”.

Under the intrinsic value method, when the exercise price of the Company’s employee stock awards equals the market price of the underlying stock on the date of grant, no compensation expense is recognized in the Company’s Consolidated Statements of Operations. The Company currently recognizes compensation expense under APB 25 relating to certain stock options and restricted stock with exercise prices below fair market value on the date of grant.

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The Company is required under SFAS 123 to disclose pro forma information regarding the stock awards made to its employees based on specified valuation techniques that produce estimated compensation charges. The pro forma information is as follows (in thousands, except per share data):

	Three Months Ended						Nine Months Ended
	April 24, 2004			April 26, 2003			April 24, 2004			April 26, 2003
Net loss:
As reported	$	(10,573	)	$	(11,894	)	$	(35,749	)	$	(45,373	)
Stock-based compensation expense included in reported net loss under APB 25		1,258			1,997			4,688			6,474
Stock-based compensation expense that would have been included in reported net loss if the fair value provisions of FAS 123 had been applied to all awards		(9,732	)		(10,103	)		(28,829	)		(38,167	)
Pro forma	$	(19,047	)	$	(20,000	)	$	(59,890	)	$	(77,066	)
Basic and diluted net loss per share:
As reported	$	(0.04	)	$	(0.04	)	$	(0.13	)	$	(0.17	)
Pro forma	$	(0.07	)	$	(0.08	)	$	(0.22	)	$	(0.29	)

The above pro forma disclosures are not necessarily representative of the effects on reported net income or loss for future periods. The fair value of the stock options at the date of grant was estimated using the Black-Scholes model.

4. Net Loss Per Share

Basic net loss per share is computed by dividing the net loss for the period by the weighted-average number of common shares outstanding during the period less unvested restricted stock. 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 warrants outstanding.

The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share data):

	Three Months Ended						Nine Months Ended
	April 24, 2004			April 26, 2003			April 24, 2004			April 26, 2003
Numerator:
Net loss	$	(10,573	)	$	(11,894	)	$	(35,749	)	$	(45,373	)
Denominator:
Weighted-average shares of common stock outstanding		273,103			271,518			272,598			271,489
Weighted-average shares subject to repurchase		(451	)		(4,880	)		(956	)		(6,849	)
Shares used in per-share calculation – basic and diluted		272,652			266,638			271,642			264,640
Net loss per share:
Basic and diluted	$	(0.04	)	$	(0.04	)	$	(0.13	)	$	(0.17	)

Options to purchase 28.3 million and 28.3 million shares of common stock, at respective average exercise prices of $7.45 and $7.86, have not been included in the computation of diluted net loss per share for the three and nine months ended April 24, 2004 and April 26, 2003, respectively, as their effect would have been anti-dilutive. Warrants to purchase 150,000 shares of common stock at an exercise price of $11.69 have not been included in the computation of diluted net loss per share for the three and nine months ended April 26, 2003, as their effect would have been anti-dilutive. These warrants expired unexercised during the fiscal year ended July 31, 2003.

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5. Inventories

Inventories consisted of the following (in thousands):

	April 24, 2004		July 31, 2003
Raw materials	$	106	$	861
Work in process		570		498
Finished goods		3,341		3,758
Total	$	4,017	$	5,117

6. Comprehensive Loss

The components of comprehensive loss consisted of the following (in thousands):

	Three Months Ended						Nine Months Ended
	April 24, 2004			April 26, 2003			April 24, 2004			April 26, 2003
Net loss	$	(10,573	)	$	(11,894	)	$	(35,749	)	$	(45,373	)
Unrealized loss on investments		(2,230	)		(510	)		(2,286	)		(431	)
Comprehensive loss	$	(12,803	)	$	(12,404	)	$	(38,035	)	$	(45,804	)

7. Restructuring Charges and Related Asset Impairments

In fiscal 2001, the telecommunications industry began a severe decline which has impacted equipment suppliers, including the Company. In response to the telecommunications industry downturn, the Company enacted three separate restructuring programs: the first in the third quarter of fiscal 2001 (the “fiscal 2001 restructuring”), the second in the first quarter of fiscal 2002 (the “first quarter fiscal 2002 restructuring”), and the third in the fourth quarter of fiscal 2002 (the “fourth quarter fiscal 2002 restructuring”). As part of the Company’s fourth quarter fiscal 2002 restructuring program, the Company discontinued the development of its standalone transport products and focused its business exclusively on optical switching products. During fiscal 2002, as a result of the combined activity under all of the restructuring programs, the Company recorded a total net charge of $241.5 million, which was classified in the statement of operations as follows: cost of revenue - $91.7 million, operating expenses - $125.0 million, and non-operating expenses - $24.8 million. The originally recorded restructuring charges were subsequently reduced by credits totaling $14.6 million (cost of revenue - $10.8 million and operating expenses - $3.8 million). During fiscal 2003, due to various changes in estimates relating to the prior restructuring programs, the Company recorded a credit of $0.5 million classified as cost of revenue, and a net credit of $4.4 million classified as operating expenses as described below.

During the third and fourth quarters of fiscal 2003, the Company recorded a net $4.4 million credit to operating expenses due to various changes in estimates relating to its restructuring programs. The changes in estimates consisted primarily of an $8.6 million reduction in the estimated legal matters associated with the restructuring programs, a $0.9 million credit relating to proceeds received from the disposal of certain equipment and a $0.8 million reduction in the costs associated with a workforce reduction, partially offset by $4.9 million of additional facility consolidation charges and a $1.0 million charge for the write-down of certain land. In addition, the Company recorded a $0.5 million credit to cost of revenue relating to a favorable settlement with a supplier. While the Company has reduced the accrual for potential legal matters based on its current estimate, given the inherent uncertainties involved in such matters, it is reasonably possible that the Company may incur a loss in addition to the amount accrued. In addition, in the event that other contingencies associated with the restructuring programs occur, or the estimates associated with the restructuring programs are revised, the Company may be required to record additional charges or credits against the reserves previously recorded for its restructuring programs.

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As of April 24, 2004, the Company had $14.3 million in accrued restructuring costs, consisting primarily of $13.8 million of accrued liabilities for facility consolidations. Details regarding each of the restructuring programs are described below.

Fiscal 2001 Restructuring:

The fiscal 2001 restructuring program included a workforce reduction of 131 employees, consolidation of excess facilities, and the restructuring of certain business functions to eliminate non-strategic products and overlapping feature sets. The Company recorded restructuring charges and related asset impairments of $81.9 million classified as operating expenses and an excess inventory charge of $84.0 million relating to discontinued product lines, which was classified as cost of revenue. The restructuring charges included amounts accrued for potential legal matters, administrative expenses and professional fees associated with the restructuring programs, including employment termination related claims. The Company substantially completed the fiscal 2001 restructuring program during the first half of fiscal 2002. In the fourth quarter of fiscal 2002, the Company recorded a net $2.1 million credit to operating expenses due to various changes in estimates. The changes in estimates consisted primarily of $4.7 million of additional facility consolidation charges due to less favorable sublease assumptions, offset by a $6.7 million reduction in the potential legal matters associated with the restructuring programs. During the third and fourth quarters of fiscal 2003, the Company recorded a net $1.3 million charge to operating expenses due to various changes in estimates. The changes in estimates consisted of $3.6 million of additional facility consolidation charges due to less favorable sublease assumptions, partially offset by a $2.3 million reduction in potential legal matters associated with the restructuring programs. As of April 24, 2004, the projected future cash payments of $10.5 million consist of facility consolidation charges that will be paid over the respective lease terms through fiscal 2007, and potential legal matters associated with the restructuring programs.

The restructuring charges and related asset impairments recorded in the fiscal 2001 restructuring program, and the reserve activity since that time, are summarized as follows (in thousands):

	Original Restructuring Charge		Non-Cash Charges		Payments		Adjustments		Accrual Balance at July 31, 2003		Payments		Accrual Balance at April 24, 2004
Workforce reduction	$	4,174	$	829	$	3,203	$	142	$	—	$	—	$	—
Facility consolidations and certain other costs		24,437		1,214		9,675		658		12,890		2,356		10,534
Inventory and asset write-downs		137,285		84,972		52,313		—		—		—		—
Total	$	165,896	$	87,015	$	65,191	$	800	$	12,890	$	2,356	$	10,534

First Quarter Fiscal 2002 Restructuring:

The first quarter fiscal 2002 restructuring program included a workforce reduction of 239 employees, consolidation of excess facilities and charges related to excess inventory and other asset impairments. As a result, the Company recorded restructuring charges and related asset impairments of $77.3 million classified as operating expenses and an excess inventory charge of $102.4 million classified as cost of revenue. In addition, the Company recorded charges totaling $22.7 million, classified as a non-operating expense, relating to impairments of investments in non-publicly traded companies that were determined to be other than temporary. The restructuring charges included $7.1 million of costs relating to the workforce reduction, $11.2 million related to the write-down of certain land, lease terminations and non-cancelable lease costs and $6.0 million for potential legal matters, administrative expenses and professional fees associated with the restructuring programs, including employment termination related claims. The restructuring charges also included $102.4 million for inventory write-downs and non-cancelable purchase commitments for inventories due to a severe decline in the forecasted demand for the Company’s products and $53.1 million for asset impairments related to the Company’s vendor financing agreements and fixed assets that the Company abandoned.

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The first quarter fiscal 2002 restructuring program was substantially completed during the fourth quarter of fiscal 2002. During the third and fourth quarters of fiscal 2002, the Company recorded credits totaling $10.8 million to cost of revenue due to changes in estimates, the majority of which related to favorable settlements with contract manufacturers for non-cancelable inventory purchase commitments. In addition, during the fourth quarter of fiscal 2002, the Company recorded a net $1.7 million credit to operating expenses relating to various changes in estimates. The changes in estimates consisted of a $1.7 million reduction in potential legal matters associated with the restructuring programs and the reversal of an accrued liability of $0.8 million for workforce reductions, partially offset by $0.9 million of additional facility consolidation charges. During the third and fourth quarters of fiscal 2003, the Company recorded a net $1.4 million credit to operating expenses due to various changes in estimates. The changes in estimates consisted of a $2.2 million reduction in potential legal matters associated with the restructuring programs, partially offset by $0.8 million of additional facility consolidation charges due to less favorable sublease assumptions. In addition, the Company recorded a $1.0 million non-cash charge to operating expenses for the write-down of certain land and a $0.5 million credit to cost of revenue relating to a favorable settlement with a supplier. As of April 24, 2004, the projected future cash payments of $0.7 million consist primarily of facility consolidation charges that will be paid over the respective lease terms through fiscal 2005 and potential legal matters associated with the restructuring programs.

The restructuring charges and related asset impairments recorded in the first quarter fiscal 2002 restructuring program, and the reserve activity since that time, are summarized as follows (in thousands):

	Original Restructuring Charge		Non-cash Charges		Payments		Adjustments		Accrual Balance at July 31, 2003		Payments		Accrual Balance at April 24, 2004
Workforce reduction	$	7,106	$	173	$	6,106	$	827	$	—	$	—	$	—
Facility consolidations and certain other costs		17,181		8,572		4,505		2,284		1,820		1,113		707
Inventory and asset write-downs		155,451		102,540		42,107		10,804		—		—		—
Losses on investments		22,737		22,737		—		—		—		—		—
Total	$	202,475	$	134,022	$	52,718	$	13,915	$	1,820	$	1,113	$	707

Fourth Quarter Fiscal 2002 Restructuring:

The fourth quarter fiscal 2002 restructuring program included a workforce reduction of 225 employees, consolidation of excess facilities, and the restructuring of certain business functions to eliminate non-strategic products. This included discontinuing the development of the Company’s standalone transport products, including the SN 8000 Intelligent Optical Transport Node and the SN 10000 Intelligent Optical Transport System. As a result, the Company recorded restructuring charges and related asset impairments of $51.5 million classified as operating expenses. In addition, the Company recorded a charge of $2.1 million, classified as a non-operating expense, relating to impairments of investments in non-publicly traded companies that were determined to be other than temporary. The restructuring charges included $8.7 million of costs relating to the workforce reduction, $5.6 million for lease terminations and non-cancelable lease costs and $14.5 million relating to potential legal matters, contractual commitments, administrative expenses and professional fees related to the restructuring programs, including employment termination related claims. The restructuring charges also included $22.6 million of costs relating to asset impairments, which primarily included fixed assets that were disposed of, or abandoned, due to the rationalization of the Company’s product offerings and the consolidation of excess facilities. The fourth quarter fiscal 2002 restructuring program was substantially completed during the first half of fiscal 2003.

During the third and fourth quarters of fiscal 2003, the Company recorded a net $4.4 million credit to operating expenses due to various changes in estimates. The changes in estimates consisted of a $4.1 million reduction in potential legal matters associated with the restructuring programs and a $0.8 million reduction in the costs associated with the workforce reduction, partially offset by $0.5 million of additional facility consolidation charges. In addition, the Company recorded a $0.9 million credit to operating expenses relating to proceeds received from the disposal of certain equipment. As of April 24, 2004, the projected future cash payments of $3.1 million consist

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primarily of facility consolidation charges that will be paid over the respective lease terms through fiscal 2006 and potential legal matters and contractual commitments associated with the restructuring programs.

The restructuring charges and related asset impairments recorded in the fourth quarter fiscal 2002 restructuring program, and the reserve activity since that time, are summarized as follows (in thousands):

	Original Restructuring Charge		Non-cash Charges		Payments		Adjustments		Accrual Balance at July 31, 2003		Payments		Accrual Balance at April 24, 2004
Workforce reduction	$	8,713	$	814	$	7,129	$	770	$	—	$	—	$	—
Facility consolidations and certain other costs		20,132		—		12,116		3,640		4,376		1,318		3,058
Asset write-downs		22,637		22,637		—		—		—		—		—
Losses on investments		2,108		2,108		—		—		—		—		—
Total	$	53,590	$	25,559	$	19,245	$	4,410	$	4,376	$	1,318	$	3,058

8. Recent Accounting Pronouncements

In November 2002, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 00-21 (“EITF 00-21”), “Revenue Arrangements with Multiple Deliverables.” EITF 00-21 provides guidance on accounting for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF 00-21 were applied to multiple element revenue arrangements entered into by the Company beginning in the first quarter of fiscal 2004. The adoption of EITF 00-21 did not have a material impact on the Company’s financial position or results of operations.

In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities.” FIN 46 requires that if an entity has a controlling financial interest in a variable interest entity, the assets, liabilities and results of activities of the variable interest entity should be included in the consolidated financial statements of the entity. FIN 46 requires that its provisions are effective immediately for all arrangements entered into after January 31, 2003. For those arrangements entered into prior to January 31, 2003, FIN 46, as amended by FIN 46R, provisions are required to be adopted by the Company in the third quarter of fiscal 2004. The adoption of FIN 46R did not have a material impact on the Company’s financial position or results of operations.

In May 2003, the FASB issued SFAS 150, “Accounting For Certain Financial Instruments with Characteristics of Both Liabilities and Equity” which establishes standards for how an issuer of financial instruments classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on a fixed monetary amount known at inception, variations in something other than the fair value of the issuer’s equity shares or variations inversely related to changes in the fair value of the issuer’s equity shares. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS 150 did not have a material impact on the Company’s financial position or results of operations.

In December 2003, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 104, Revenue Recognition (“SAB 104”), which supercedes SAB 101, Revenue Recognition in Financial Statements. The primary purpose of SAB 104 is to rescind accounting guidance contained in SAB 101 related to multiple element revenue arrangements, which was superceded as a result of the issuance of EITF 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. While the wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain largely unchanged by the issuance of SAB 104. The adoption of SAB 104 did not have a material impact on the Company’s financial statements.

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9. Commitments and Contingencies

Litigation

Beginning on July 2, 2001, several purported class action complaints were filed in the United States District Court for the Southern District of New York against the Company and several of its officers and directors (the “Individual Defendants”) and the underwriters for the Company’s initial public offering on October 21, 1999. Some of the complaints also include the underwriters for the Company’s follow-on offering on March 14, 2000. The complaints were consolidated into a single action and an amended complaint was filed on April 19, 2002. The amended complaint, which is the operative complaint, was filed on behalf of persons who purchased the Company’s common stock between October 21, 1999 and December 6, 2000. The amended complaint alleges violations of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, primarily based on the assertion that the Company’s lead underwriters, the Company and the other named defendants made material false and misleading statements in the Company’s Registration Statements and Prospectuses filed with the SEC in October 1999 and March 2000 because of the failure to disclose (a) the alleged solicitation and receipt of excessive and undisclosed commissions by the underwriters in connection with the allocation of shares of common stock to certain investors in the Company’s public offerings and (b) that certain of the underwriters allegedly had entered into agreements with investors whereby underwriters agreed to allocate the public offering shares in exchange for which the investors agreed to make additional purchases of stock in the aftermarket at pre-determined prices. The amended complaint alleges claims against the Company, several of the Company’s officers and directors and the underwriters under Sections 11 and 15 of the Securities Act. It also alleges claims against the Company, the Individual Defendants and the underwriters under Sections 10(b) and 20(a) of the Securities Exchange Act. The amended complaint seeks damages in an unspecified amount.

The action against the Company is being coordinated with approximately three hundred other nearly identical actions filed against other companies. The actions seek damages in an unspecified amount. On October 9, 2002, the court dismissed the Individual Defendants from the case without prejudice based upon Stipulations of Dismissal filed by the plaintiffs and the Individual Defendants. The Company has approved a Memorandum of Understanding (“MOU”) and related agreements which set forth the terms of a proposed settlement between the Company and the plaintiff class. Among other provisions, the settlement contemplated by the MOU provides for a release of the Company and the Individual Defendants with respect to claims related to the conduct alleged in the action to be wrongful. Pursuant to the settlement contemplated by the MOU, the Company would agree to undertake certain responsibilities, including agreeing to assign to the plaintiffs, and not otherwise assert or release, certain potential claims the Company may have against its underwriters. It is anticipated that any potential financial obligation of the Company to plaintiffs pursuant to the terms of the MOU and related agreements will be covered by existing insurance. Therefore, the Company does not expect that the settlement will involve any payment by the Company. The MOU and related agreements are subject to a number of contingencies, including the negotiation of a settlement agreement and its approval by the Court. The Company is unable to determine whether or when a settlement will occur or be finalized. In the event that a settlement is not finalized, the Company is not currently able to estimate the possibility of loss or range of loss, if any, relating to these claims. Due to the large number of nearly identical actions, the Court has ordered the parties to select up to twenty “test” cases. To date, along with eleven other cases, the Company’s case has been selected as one such test case. As a result, among other things, the Company will be subject to discovery obligations and expenses in the litigation, whereas non-test case issuer defendants will not be subject to such obligations.

On April 1, 2003, a complaint was filed against the Company in the United States Bankruptcy Court for the Southern District of New York by the creditors’ committee (the “Committee”) of 360networks (USA), inc. and 360networks services inc. (the “Debtors”). The Debtors are the subject of a Chapter 11 bankruptcy proceeding but are not plaintiffs in the complaint filed by the Committee. The complaint seeks recovery of alleged preferential payments in the amount of approximately $16.1 million, plus interest. The Committee alleges that the Debtors made the preferential payments under Section 547(b) of the Bankruptcy Code to the Company during the 90-day period prior to the Debtors’ bankruptcy filings. The Company believes that the claims against it are without merit and intends to defend against the complaint vigorously. The Company is not currently able to estimate the possibility of loss or range of loss, if any, relating to these claims.

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The Company is subject to legal proceedings, claims, and litigation arising in the ordinary course of business. While the outcome of these matters is currently not determinable, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on the Company’s results of operations or financial position.

Guarantees

FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”), requires that upon issuance of a guarantee, the guarantor must disclose and recognize a liability for the fair value of the obligation assumed under that guarantee. The initial recognition and measurement requirement of FIN 45 is effective for guarantees issued or modified after December 31, 2002 only for those items that require disclosure. As of April 24, 2004, the Company’s guarantees requiring disclosure consist of its accrued warranty obligations and indemnifications for intellectual property infringement claims.

In the normal course of business, the Company may also agree to indemnify other parties, including customers, lessors and parties to other transactions with the Company, with respect to certain matters. The Company has agreed to hold these other parties harmless against losses arising from a breach of representations or covenants, or other claims made against certain parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company, if any, under these agreements have not had a material impact on the Company’s operating results or financial position. Accordingly, the Company has not recorded a liability for these agreements as the Company believes the fair value is not material.

Warranty liability

The Company records a warranty liability for parts and labor on its products at the time revenue is recognized. Warranty periods are generally three years from installation date. The estimate of the warranty liability is based primarily on the Company’s historical experience in product failure rates and the expected material and labor costs to provide warranty services.

The following table summarizes the activity related to product warranty liability during the nine months ended April 24, 2004 (in thousands):

Balance at July 31, 2003	$	4,651
Accruals for warranties during the period		424
Settlements		(446)
Adjustments related to preexisting warranties		(1,033)
Balance at April 24, 2004	$	3,596

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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 this Form 10-Q. The information discussed in this report should be read in conjunction with our Annual Report on Form 10-K and other reports we file from time to time with the Securities and Exchange Commission. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future results or otherwise. 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.

Executive Summary

Sycamore Networks, Inc. was incorporated in Delaware on February 17, 1998.

Sycamore develops and markets optical networking products for telecommunications service providers worldwide. Our current and prospective customers include domestic and international large, established telecommunications service providers (sometimes referred to as incumbent service providers), Internet service providers, non-traditional telecommunications service providers, newer start-up service providers (sometimes referred to as emerging service providers), systems integrators, governments and enterprise organizations with private fiber networks. We believe that our products enable service providers to cost-effectively and easily transition their existing fiber optic network into an infrastructure that can provision, manage and deliver economic, high-bandwidth services to their customers.

In early 2001, the telecommunications industry began a severe decline which caused the failure of certain emerging service providers and significant financial difficulties for a number of incumbent service providers. Both our existing and prospective service provider customers responded by curtailing network build outs and reducing their overall capital expenditures. After several years of significantly lower capital spending, most service providers’ operating costs remain high while their revenue is growing slowly, if at all. We believe that these trends may drive industry consolidation in both the service provider and equipment supplier markets.

Our business has been significantly impacted by the decline in the telecommunications industry. Our revenue declined from a high of $374.7 million in fiscal 2001 to $38.3 million in fiscal 2003. In addition, we enacted three separate restructuring programs, which have reduced our current cost structure compared to historical levels and focused our business on optical switching products, network management software, and network design and planning tools. However, we continue to maintain a significant cost structure, particularly within the research and development, sales and customer support organizations. We believe this cost structure is necessary to develop, market and sell our products to current and prospective customers. Due to our decreased revenues, our restructuring programs and our decision to maintain a significant cost structure, we have incurred a third quarter net loss of $10.6 million and a cumulative net loss of $771.9 million at April 24, 2004. We expect that our continued significant cost structure will have an adverse impact on our cost of revenue, gross margins and operating results unless our revenues can be substantially increased.

As a result of this environment, Sycamore continues to face challenges as a focused optical switching vendor. These challenges include, but are not limited to the following:

• We continue to compete against a number of larger more established incumbent telecom equipment suppliers, many of whom have long-standing relationships with our current and prospective customers.

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• More established incumbent competitors generally have more diverse product lines which allow them the flexibility to price their products more aggressively and absorb the large optical switching overhead expenses across their entire business.

• In order to remain competitive, we continue to devote significant resources to research and development, sales and customer support, which may generate additional operating losses and consume cash.

To respond to these challenges, we continue to review potential options including, but not limited to, alliances with larger networking companies, acquisitions of companies with complementary technologies or of companies that participate in adjacent market segments and other such transactions. Additionally, we continue to consider appropriate actions with respect to our cash position in light of our present and anticipated business needs and the options available in which shareholders may realize value in connection with their investment in us.

We reported revenue of $14.7 million for the third quarter of fiscal 2004. This was an increase of 114.1 % from the second quarter of 2004 and a 38.8% increase from the third quarter of 2003. During the second quarter of fiscal 2004, the Defense Information Systems Agency (DISA) selected our products to serve as the optical digital cross connect platform for the Global Information Grid Bandwidth Expansion (GIG-BE) project. During the third quarter of fiscal 2004, through our distribution partner, DISA purchased certain evaluation equipment and began accepting shipments of our product. The GIG-BE project had a significant impact on third quarter revenue, totaling approximately $10.3 million. At this time, DISA is finalizing its project deployment plans and as a result the size of the project, the timing of any shipments and their impact on Sycamore is uncertain. Given our historical revenue levels any significant quarterly GIG-BE shipment may have a material impact on our revenue.

Our gross margin for the quarter was 32.7%. Our gross margins fluctuate from quarter to quarter based on the mix of customers, products sold, channels of distribution, shipment volume, overhead absorption, sales discounts, increases in material or labor costs, excess inventory and obsolescence charges, loss of cost savings due to changes in component pricing, the introduction of new products or entering new markets with different pricing and cost structures. Given the competitive environment, we expect that gross margins will continue to fluctuate quarterly.

Our total cash, cash equivalents and investments were $965.6 million at April 24, 2004. Included in this amount were cash and cash equivalents of $222.7 million. We intend to fund our operations, including fixed commitments under operating leases, and any required capital expenditures over the next few years using our existing cash, cash equivalents and investments. We believe that, based on our business plans and current conditions, our existing cash, cash equivalents and investments will be sufficient to satisfy our anticipated cash requirements for the next twelve months. We also believe that our current cash, cash equivalents and investments will enable us to pursue the strategic alternatives discussed above.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements. The preparation of these financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires us to make judgments, assumptions and estimates that affect the reported amounts of assets, liabilities, revenue and expenses and disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate these estimates, including those relating to the allowance for doubtful accounts, inventory allowance, valuation of investments, warranty obligations, restructuring liabilities and asset impairments, litigation and other contingencies. Estimates are based on our historical experience and other assumptions that we consider reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected.

We believe that the following critical accounting policies affect the most significant judgments, assumptions and estimates we use in preparing our consolidated financial statements. Changes in these estimates can affect materially the amount of our reported net income or loss.

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Revenue Recognition

When products are shipped to customers, we evaluate whether all of the fundamental criteria for revenue recognition have been met. The most significant revenue recognition judgments typically involve customer acceptance and whether collection is reasonably assured.

Some of our transactions involve the sale of products and services under multiple element arrangements. While each individual transaction varies according to the terms of the purchase order or sales agreement, a typical multiple element arrangement may include some or all of the following components: product shipments, installation services, maintenance and training. The total sales price is allocated based on the relative fair value of each component, which generally is the price charged for each component when sold separately. For the product portion, we recognize revenue upon shipment if there are no significant uncertainties regarding customer acceptance. If uncertainties regarding customer acceptance exist, we recognize revenue when the uncertainties are resolved. For installation services, typically we recognize revenue for services that have been performed upon acceptance in accordance with the contract. For maintenance and training services, we recognize revenue when the services are performed.

Allowance for Doubtful Accounts

The allowance for doubtful accounts is based on our assessment of the collectibility of specific customer accounts. In the event that we become aware of deterioration in a particular customer’s financial condition, a review is performed to determine if additional provisions for doubtful accounts are required.

Warranty Obligations

We accrue for warranty costs at the time revenue is recognized based on contractual rights and on the historical rate of claims and costs to provide warranty services. If we experience an increase in warranty claims above historical experience or our costs to provide warranty services increase, we may be required to increase our warranty accrual. An increase in the warranty accrual will have an adverse impact on our gross margins.

Inventory Allowance

We continuously monitor inventory balances and record inventory allowances for any excess of the cost of the inventory over its estimated market value, based on assumptions about future demand and market conditions. While such assumptions may change from period to period, we measure the net realizable value of inventories using the best information available as of the balance sheet date. If actual market conditions are less favorable than those projected, or we experience a higher incidence of inventory obsolescence because of rapidly changing technology and customer requirements, additional inventory allowances may be required, such as the $102.4 million charge we recorded in the first quarter of fiscal 2002.

Once we have written down inventory to its estimated net realizable value, we cannot increase its carrying value due to subsequent changes in demand forecasts. Accordingly, if inventory previously written down to its net realizable value is subsequently sold, we may realize improved gross profit margins on these transactions.

Restructuring Liabilities and Asset Impairments

During the third quarter of fiscal 2001 and the first and fourth quarters of fiscal 2002, we recorded charges for restructuring and related asset impairments totaling $422.0 million, including inventory related charges of $186.4 million. These restructuring programs required us to make numerous assumptions and estimates such as future revenue levels and product mix, the timing of and the amounts received for subleases of excess facilities, the fair values of impaired assets, the amounts of other than temporary impairments of strategic investments, and the potential legal matters, administrative expenses and professional fees associated with the restructuring programs.

We continuously monitor the judgments, assumptions and estimates relating to the restructuring programs and, if these judgments, assumptions and estimates change, we may be required to record additional charges or credits against the reserves previously recorded for these restructuring programs. For example, during the third and fourth quarters of fiscal 2003, we recorded a net credit totaling $4.4 million to operating expenses, due to various changes in estimates relating to all of our restructuring programs. These credits included decreases in the accruals for potential legal matters associated with the restructuring programs and workforce reduction costs, partially offset by increases in the accrual for additional facility consolidation charges due to less favorable sublease assumptions. While we have reduced the accrual for potential legal matters based on our current estimate, given the inherent

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uncertainties involved in such matters, it is reasonably possible that we may incur a loss in addition to the amount accrued. In addition, in the event that other contingencies associated with the restructuring programs occur, or the estimates associated with the restructuring programs are revised, we may be required to record additional charges or credits against the reserves previously recorded for the restructuring programs. As of April 24, 2004, we had $13.8 million accrued as part of our restructuring liability relating to facility consolidations, based on our best estimate of the available sublease rates and terms at the present time. In the event that we are unsuccessful in subleasing any of the restructured facilities, we could incur additional restructuring charges and cash outflows in future periods totaling $1.2 million, which represents our current estimate of the assumed sublease recoveries.

Results of Operations

Revenue

The following table presents product and service revenue (in thousands, except percentages):

	Three Months Ended								Nine Months Ended
	April 24, 2004		April 26, 2003		Variance in Dollars		Variance in Percent		April 24, 2004		April 26, 2003		Variance in Dollars			Variance in Percent
Revenue
Product	$	11,355	$	7,696	$	3,659	47.5	%	$	21,184	$	17,997	$	3,187		17.7	%
Service		3,363		2,905		458	15.8	%		8,850		9,367		(517	)	(5.5	%)
Total revenue	$	14,718	$	10,601	$	4,117	38.8	%	$	30,034	$	27,364	$	2,670		9.8	%

Product revenue increased for the three and nine months ended April 24, 2004 compared to the same periods ended April 26, 2003 primarily due to revenue generated from the GIG-BE project. Service revenue increased for the third quarter of fiscal 2004 compared to the third quarter of fiscal 2003 primarily due to revenue from the GIG-BE project. Service revenue decreased for the nine months ended April 24, 2004 compared to the nine months ended April 26, 2003 primarily due to a lower level of maintenance services partially offset by a higher level of installation services associated with product deployments.

For the third quarter of fiscal 2004, the GIG-BE product revenue accounted for the majority of revenue and domestic revenue represented 70.1% of total revenue. For the third quarter of fiscal 2003, three international customers accounted for the majority of total revenue and international revenue represented more than 97% of total revenue. For the current fiscal year ending July 31, 2004, we anticipate that revenue will continue to be highly concentrated in a relatively small number of customers. GIG-BE deployments in any given quarter may cause shifts in the percentage mix of domestic and international revenue.

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Gross profit (loss)

The following table presents gross profit (loss) for product and services, including non-cash stock-based compensation expense (in thousands, except percentages):

	Three Months Ended						Nine Months Ended
	April 24, 2004			April 26, 2003			April 24, 2004			April 26, 2003
Gross profit (loss):
Product	$	3,630		$	1,455		$	7,542		$	703
Service		1,189			103			2,266			(825	)
Total	$	4,819		$	1,558		$	9,808		$	(122	)
Gross profit (loss):
Product		32.0	%		18.9	%		35.6	%		3.9	%
Service		35.4	%		3.5	%		25.6	%		(8.8	%)
Total		32.7	%		14.7	%		32.7	%		(0.4	%)

Product gross profit

Product gross profit increased for the three and nine months ended April 24, 2004 compared to the same periods ended April 26, 2003 primarily as a result of the following factors: (i) the sale of partially amortized evaluation equipment which had a favorable impact on gross profit, (ii) the expiration of preexisting warranty obligations and (iii) decreased manufacturing costs.

We believe that product gross profit may fluctuate in the future due to changes in the mix of products sold, channels of distribution, shipment volume, overhead absorption, sales discounts, increases in material or labor costs, excess inventory and obsolescence charges, loss of cost savings due to changes in component pricing, the introduction of new products or entering new markets with different pricing and cost structures and pricing pressures resulting from intense competition for limited optical switching opportunities worldwide.

Service gross profit (loss)

Service gross profit increased for the three and nine months ended April 24, 2004 compared to the same periods ended April 26, 2003 due to a reduction in fixed support costs and lower personnel-related costs.

Service gross profit may be affected in future periods by various factors such as the change in mix between technical support services and advanced services, as well as the timing of technical support service contract initiations and renewals.

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Operating Expenses

The following table presents operating expenses (in thousands, except percentages):

	Three Months Ended										Nine Months Ended
	April 24, 2004		April 26, 2003			Variance in Dollars			Variance in Percent		April 24, 2004		April 26, 2003			Variance in Dollars			Variance in Percent
Research and development	$	11,257	$	12,679		$	(1,422	)	(11.2	)%	$	34,306	$	40,038		$	(5,732	)	(14.3	)%
Sales and marketing		4,896		4,884			12		0.2	%		13,652		14,896			(1,244	)	(8.4	)%
General and administrative		1,642		1,852			(210	)	(11.3	)%		5,092		5,261			(169	)	(3.2	)%
Stock-based compensation		1,082		1,656			(574	)	(34.7	)%		4,155		5,420			(1,265	)	(23.3	)%
Restructuring charges and related impairments		—		(2,193	)		2,193		—			—		(2,193	)		2,193		—
Total operating expenses	$	18,877	$	18,878		$	(1	)	—		$	57,205	$	63,422		$	(6,217	)	(9.8	)%

Research and Development Expenses

Research and development expense decreased for the three and nine months ended April 24, 2004 compared to the same periods ended April 26, 2003. The decrease was primarily due to reduced costs for project materials, lower personnel-related expenses and reduced fixed overhead costs.

Sales and Marketing Expenses

Sales and marketing expense increased for the three months ended April 24, 2004 compared to the same period ended April 26, 2003. The increase was primarily due to higher commissions resulting from increased revenue from the GIG-BE project, and an increase in cost of demonstration equipment, partially offset by lower personnel-related expenses. The decrease in sales and marketing expense for the nine months ended April 24, 2004 compared to the same period ended April 26, 2003 was primarily due to lower personnel-related expenses.

General and Administrative Expenses

General and administrative expense decreased for the three and nine months ended April 24, 2004 compared to the same periods ended April 26, 2003. The decrease was primarily due to lower personnel-related expenses.

Stock-Based Compensation Expense

Stock-based compensation expense primarily resulted from the granting of stock options and restricted shares with exercise or sale prices that were deemed to be below fair market value. The decrease in stock based compensation expense for the three and nine months ended April 24, 2004 compared to the same periods ended April 26, 2003 was primarily due to headcount reductions from the third quarter of fiscal 2003 through the third quarter of fiscal 2004. Stock-based compensation expense is expected to impact our reported results of operations through the fourth quarter of fiscal 2005.

Restructuring Charges and Related Asset Impairments

In response to the telecommunications industry downturn, we enacted three separate restructuring programs through the fourth quarter of fiscal 2002 to reduce our costs. As a result of our restructuring programs we have incurred net charges totaling $402.4 million, comprised as follows: $175.1 million of net charges related to excess inventory, $202.5 million of net charges for restructuring and related asset impairments, and $24.8 million of losses on investments.

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The net charges of $402.4 million, include a net $2.2 million credit to operating expenses recorded in the third quarter of fiscal 2003, due to various changes in estimates relating to its restructuring programs. The changes in estimates consisted primarily of a $6.4 million reduction in the estimated legal matters associated with the restructuring programs, a $0.9 million credit relating to proceeds received from the disposal of certain equipment and a $0.8 million reduction in the costs associated with a workforce reduction, partially offset by $4.9 million of additional facility consolidation charges and a $1.0 million charge for the write-down of certain land.

As of April 24, 2004, we had $14.3 million in accrued restructuring costs, consisting primarily of $13.8 million of accrued liabilities for facility consolidations that will be paid over the respective lease terms through 2007.

Interest and Other income, Net

The following table presents interest and other income, net (in thousands, except percentages):

	Three Months Ended									Nine Months Ended
	April 24, 2004		April 26, 2003		Variance in Dollars			Variance in Percent		April 24, 2004		April 26, 2003		Variance in Dollars			Variance in Percent
Interest and other income, net	$	3,485	$	5,426	$	(1,941	)	(35.8	)%	$	11,648	$	18,171	$	(6,523	)	(35.9	)%

Interest and other income, net decreased for the three and nine months ended April 24, 2004 compared to the same periods ended April 26, 2003 due to a combination of lower interest rates and lower invested cash balances during these periods.

Provision for Income Taxes

We did not provide for income taxes for the three and nine months ended April 24, 2004, or for the same periods in fiscal 2003, due to our cumulative taxable losses in recent years and the net losses incurred during each period. We did not record any tax benefits relating to these losses due to the uncertainty surrounding the realization of these future tax benefits.

Liquidity and Capital Resources

Total cash, cash equivalents and investments were $965.6 million at April 24, 2004. Included in this amount were cash and cash equivalents of $222.7 million, compared to $250.6 million at July 31, 2003. The decrease in cash and cash equivalents for the nine months ended April 24, 2004 was due to cash used in operating activities of $29.2 million and cash used in investing activities of $3.2 million, offset by cash provided by financing activities of $4.5 million.

Cash used in investing activities of $3.2 million consisted primarily of purchases of property and equipment of $3.5 million. Cash provided by financing activities of $4.5 million consisted primarily of proceeds from employee stock plan activity. Cash used in operating activities of $29.2 million consisted of the net loss for the period of $35.7 million, adjusted for net non-cash charges totaling $12.6 million and changes to working capital totaling $6.1 million. The most significant changes to working capital were a decrease in accrued restructuring costs of $4.8 million, an increase in deferred revenue of $4.2 million and an increase in accounts receivable of $3.4 million. Non-cash charges include depreciation and amortization, provision for doubtful accounts and stock-based compensation.

Our primary source of liquidity comes from our cash, cash equivalents and investments, which totaled $965.6 million at April 24, 2004. Our investments are classified as available-for-sale and consist of securities that are readily convertible to cash, including certificates of deposits, commercial paper and government securities, with original maturities at the date of acquisition ranging from 90 days to three years. At April 24, 2004, $384.8 million of investments with maturities of less than one year were classified as short-term investments, and $358.1 million of investments with maturities of greater than one year were classified as long-term investments. At current revenue levels, we anticipate that some portion of our existing cash and cash equivalents and investments will continue to be

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consumed by operations. Our accounts receivable, while not considered a primary source of liquidity, represents a concentration of credit risk because the accounts receivable balance at any point in time typically consists of a relatively small number of customer account balances. At April 24, 2004, our accounts receivable balance was attributable to 5 customers.

As of April 24, 2004, we do not have any outstanding debt or credit facilities, and do not anticipate entering into any debt or credit agreements in the foreseeable future.

Our fixed commitments for cash expenditures consist primarily of payments under operating leases and inventory purchase commitments. We do not currently have any material commitments for capital expenditures, or any other material commitments aside from operating leases for our facilities and inventory purchase commitments. Since 1999, we have funded and we expect to continue to fund our operations, including our fixed commitments under operating leases and any required capital expenditures over the next few years, using our existing cash, cash equivalents and investments as our primary source of liquidity.

Based on our current plans and business conditions, we believe that our existing cash, cash equivalents and investments will be sufficient to satisfy our anticipated cash requirements for at least the next twelve months. We will continue to consider appropriate action with respect to our cash position in light of the present and anticipated business needs as well as providing a means by which our shareholders may realize value in connection with their investment.

Off-Balance Sheet Arrangements

At April 24, 2004, our off-balance sheet arrangements, which consist entirely of contractual commitments for operating leases and inventory purchase commitments, were as follows (in thousands):

Fiscal Year:	Operating Leases		Inventory Purchase Commitments
2004 (remainder of year)	$	2,896	$	8,115
2005		5,380		1,157
2006		7,080		—
2007		2,848		—
Total future contractual commitments	$	18,204	$	9,272

Payments made under operating leases will be treated as rent expense for the facilities currently being utilized, or as a reduction of the restructuring liability for payments relating to excess facilities. Payments made for inventory purchase commitments will initially be capitalized as inventory, and will then be recorded as cost of revenue as the inventory is sold or otherwise disposed of.

Factors that May Affect Future Results

Our business has been, and is likely to continue to be, adversely affected by unfavorable conditions in the telecommunications industry and the economy in general.

In early 2001, the telecommunications industry began a severe decline which caused the failure of certain emerging service providers and significant financial difficulties for a number of incumbent service providers. Both our existing and prospective service provider customers responded by curtailing network build outs and reducing their overall capital expenditures. After several years of significantly lower capital spending, most service providers’ operating costs remain high while their revenue is growing slowly, if at all. These trends may drive industry consolidation.

The industry decline and related reduction in service provider capital expenditures has resulted in a substantial reduction in the demand for our products and materially and adversely affected our revenue and operating results. We anticipate that our current and prospective customers will not increase their capital spending in the near future.

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As a result, we anticipate that our cost of revenue, gross profit and operating results will continue to be adversely affected by these market conditions.

We expect the trends described above to continue to affect our business in the following ways:

• our current and prospective customers will continue to have limited capital expenditures;

• we will continue to have limited ability to forecast the volume and product mix of our sales;

• we will experience increased competition as a result of reduced demand and we may experience downward pressures on pricing of our products which reduces gross margins;

• the increased competition may enable customers to demand more favorable terms and conditions of sales including extended payment terms; and

• the bankruptcies or weakened financial condition of some of our customers may require us to write off amounts due from prior sales.

These factors could lead to further reduced revenues and gross margins and increased operating losses.

Our strategy to pursue strategic opportunities may not be successful.

We face challenges as a focused optical switching vendor. In order to address these challenges we may, as part of our business strategy, pursue strategic alliances with larger networking companies, acquisitions of companies with complementary technologies or of companies that participate in adjacent market segments and other such transactions. Any such strategic option would be subject to inherent risk and we cannot guarantee that we will be able to identify the appropriate opportunities, successfully negotiate economically beneficial terms, successfully integrate any acquired business, retain key employees or achieve the anticipated synergies of any strategic transaction. Additionally, we may issue additional shares in connection with a strategic transaction that could dilute the holdings of existing common stockholders or we may utilize cash in such a strategic transaction. In implementing our strategy, we may enter markets in which we have little or no prior experience and there can be no assurance that we will be successful.

Further, we may consider appropriate action with respect to our cash position in light of present and anticipated business needs as well as the possibility of providing a means by which shareholders may realize value in connection with their investment in our common stock.

We currently depend entirely on our line of intelligent optical networking products and our revenue depends upon their commercial success.

Our revenue depends on the commercial success of our line of intelligent optical networking products. Over the past three years, we have narrowed the scope of our product offerings, including discontinuing the development of our standalone transport products. Our research and development efforts focus exclusively on optical switching products and network management systems. We believe that continued investment in research and development is necessary in order to provide innovative solutions to our current and prospective customers. We cannot assure you that we will be successful in:

• anticipating evolving customer requirements;

• completing the development, introduction or production manufacturing of new products; or

• enhancing our existing products.

If our current and prospective customers do not adopt our intelligent optical networking products, and do not purchase and successfully deploy our current and future products, our business, financial condition and results of operations could be materially adversely affected.

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Current economic conditions makes forecasting difficult.

Current economic and market conditions have limited our ability to forecast the volume and product mix of our sales, making it difficult to provide estimates of revenue and operating results. We continue to have limited visibility into the capital spending plans of our current and prospective customers. Fluctuations in our revenue can lead to even greater fluctuations in our operating results. Our planned expense levels depend in part on our expectations of long-term future revenue. Our planned expenses include significant investments in our research and development, sales and customer service organizations that we believe are necessary to support large established service providers, even though we are unsure of the volume, duration or timing of any purchase orders. As a result, it is difficult to forecast revenue and operating results. If our revenue and operating results are below the expectations of our investors and market analysts, it could cause a decline in the price of our common stock.

Our current strategy requires us to maintain a significant cost structure and our failure to increase our revenues would prevent us from achieving and maintaining profitability.

Our business has been significantly impacted by the decline in the telecommunications industry. Our revenue declined from a high of $374.7 million in fiscal 2001 to $38.3 million in fiscal 2003. In addition, we enacted three separate restructuring programs, which have reduced our current cost structure compared to historical levels and focused our business on optical switching products, network management software, and network design and planning tools. However, we continue to maintain a significant cost structure, particularly within the research and development, sales and customer support organizations. We believe this cost structure is necessary to develop, market and sell our products to current and prospective customers. Due to our decreased revenues, our restructuring programs and our decision to maintain a significant cost structure, we have incurred a third quarter net loss of $10.6 million and a cumulative net loss of $771.9 million at April 24, 2004. We expect that our continued significant investment in research and development and sales and customer support organizations will require us to generate significantly higher revenue over current levels in order to achieve and maintain profitability. As a result, we expect to continue to incur net losses. We cannot assure you that our revenue will increase or that we will generate sufficient revenue to achieve or sustain such profitability.

We face intense competition that could adversely affect our sales and profitability.

Competition in the optical networking market is intense. Competition is based upon a combination of price, functionality, network management, interoperability, installation, services, scalability, and incumbency. Large companies, such as Nortel Networks, Lucent Technologies, Alcatel and Ciena Corporation, have historically dominated this market. Many of our competitors have long operating histories and greater financial, sales, marketing and manufacturing resources. These competitors also have long standing existing relationships with our current and prospective customers. To a lesser extent, new competitors have entered the optical networking market using the latest available technology in order to compete with our products. Our competitors may forecast market developments more accurately and could develop new technologies that compete with our products or even render our products obsolete.

The decline in the telecommunications industry beginning in early 2001 has reduced product demand for our products and resulted in even greater competitive pressures. We expect to encounter aggressive tactics such as the following:

• price discounting;

• early announcements of competing products and other marketing efforts;

• customer financing assistance;

• complete solution sales from one single source;

• marketing and advertising assistance; and

• intellectual property disputes.

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These tactics may be effective in a highly concentrated customer base like ours. Our customers are under increasing pressure to deliver their services at the lowest possible cost. As a result, the price of an optical networking system may become an important factor in customer decisions. In certain cases, our larger competitors have more product lines that allow them the flexibility to price their products aggressively and absorb the optical switching overhead expenses across their entire business. If we are unable to offset any reductions in the average selling price of our products by a reduction in the cost of our products, our gross margins will be adversely affected.

Further, we believe that our industry may enter into a consolidation phase. Over the past two to three years, the market valuations of many companies in our industry have declined significantly making them more attractive acquisition candidates. Furthermore, the weakened financial position of many companies in our industry may make them more receptive to being acquired. We believe that industry consolidation may result in stronger competitors that are better able to compete for customers. Industry consolidation may have an adverse impact on our business, operating results, and financial condition.

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 have a material adverse effect on our business, results of operations and financial condition.

Substantially all of our revenue is generated from a limited number of customers, and our success depends on increasing both direct sales and indirect sales through distribution channels to incumbent service providers and the federal government.

We currently have a limited number of customers. In recent quarters our revenue has been concentrated among a limited number of customers. None of our customers are contractually committed to purchase any minimum quantities of products from us and orders are generally cancelable prior to shipment. We expect that our revenue will continue to depend on sales of our products to a limited number of customers. While expanding our customer base is a key objective, at the present time, the number of potential customers for our products is limited. In addition, we believe that our industry may enter into a consolidation phase which would further reduce the number of potential customers, slow purchases and delay optical switching deployment decisions.

Our direct sales efforts primarily target incumbent service providers, many of which have made significant investments in traditional optical networking infrastructures. In addition we are establishing channel relationships with distribution partners including resellers, distributors and systems integrators for the sale of our products to the federal government and commercial customers. We have entered into agreements with several distribution partners, some of which also sell products that compete with our products. We cannot be certain that we will be able to retain or attract distribution partners on a timely basis or at all, or that the distribution partners will devote adequate resources to selling our products. Since we have only limited experience in developing and managing such channels, the extent we will be successful is uncertain. If we are unable to develop and manage new channels of distribution to sell our products to incumbent service providers and the federal government, or if our distribution partners are unable to convince incumbent service providers or the federal government to deploy our intelligent optical networking solutions, our business, financial condition and results of operations will be materially adversely affected.

We may not be successful in selling our products through newly established channels to the federal government.

We believe that in order to succeed, we must build a larger and more diverse customer base. Recently, we entered into a reseller agreement for the sale of our products to the federal government and our products were selected to serve as the optical cross connect platform for DISA’s GIG-BE project. Since we have only limited experience in developing and managing such channels, the extent we will be successful is uncertain. Sales to the federal government require compliance with on-going complex procurement rules and regulations with which we have little experience. We will not be able to succeed in the market for sale to the federal government and sell our products to federal government contractors if we cannot comply with these rules and regulations. The federal government is not contractually committed to purchase our products for the GIG-BE project, and there can be no assurance that it will

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purchase our products in the future. Our failure to sell products to the federal government, including for use in the GIG-BE project, would adversely affect our ability to achieve our planned levels of revenue, which would affect our profitability and results of operations.

Any acquisitions or strategic investments we make could disrupt our business and seriously harm our financial condition.

As part of our ongoing business strategy, we consider acquisitions, strategic investments and business combinations including those in complementary companies, products or technologies, or in adjacent market segments and otherwise. We may consider such acquisitions to broaden our product portfolio, gain access to a particular customer base or market, or to take immediate advantage of a strategic opportunity. In the event of an acquisition, we may:

• issue stock that would dilute our current stockholders’ holdings;

• consume cash, which would reduce the amount of cash available for other purposes;

• incur debt or assume liabilities;

• increase our ongoing operating expenses and level of fixed costs;

• record goodwill and non-amortizable intangible assets subject to impairment testing and potential periodic impairment charges;

• incur amortization expenses related to certain intangible assets;

• incur large and immediate write-offs; or

• become subject to litigation.

Our ability to achieve the benefits of any acquisition, will also involve numerous risks, including:

• problems combining the purchased operations, technologies or products;

• unanticipated costs or liabilities;

• diversion of management’s attention from other business issues and opportunities;

• adverse effects on existing business relationships with suppliers and customers;

• problems 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.

The unpredictability of our quarterly results may adversely affect the trading price of our common stock.

In general, our revenue and operating results in any reporting period may fluctuate significantly due to a variety of factors including:

• fluctuation in demand for our products;

• the timing and size of sales of our products;

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• changes in customer requirements, including delays or order cancellations;

• the introduction of new products by us or our competitors;

• changes in the price or availability of components for our products;

• the timing of recognizing revenue and deferred revenue;

• readiness of customer sites for installation;

• changes in our pricing policies or the pricing policies of our competitors;

• satisfaction of contractual customer acceptance criteria and related revenue recognition issues;

• manufacturing and shipment delays and deferrals;

• the timing and amount of employer payroll tax to be paid on employee gains on stock options exercised;

• changes in accounting rules, such as any future requirement to record stock-based compensation expense for employee stock option grants made at fair market value; and

• general economic conditions as well as those specific to the telecommunications and related industries.

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 for one quarter as any indication of our future performance. The factors discussed above are extremely difficult to predict and impact our revenue and operating results. In addition, our ability to forecast our future business has been significantly impaired by the current economic and market conditions. As a result, we believe that our revenue and operating results are likely to continue to vary significantly from quarter to quarter and may cause our stock price to fluctuate.

Additionally, we believe that customers who make a decision to deploy our products will expand their networks slowly and deliberately. Potential new business opportunities for our products may be smaller than what we have experienced historically. Accordingly, in the event that customer order activity increased, we could receive purchase orders on an irregular and unpredictable basis. Because of the nature of our business, we cannot predict these sales and deployment cycles. The long sales cycles, as well as our expectation that customers may tend to place large orders sporadically with short lead times, may cause our revenue and results of operations to vary significantly and unexpectedly from quarter to quarter. As a result, our future operating results may be below our expectations or those of public market analysts and investors, and our revenue may decline or recover at a slower rate than anticipated by us or analysts and investors. In either event, the price of our common stock could decrease.

We utilize 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 utilize contract manufacturers to manufacture our products in accordance with our specifications and to fill orders on a timely basis. We may not be able to manage our relationships with our contract manufacturers effectively, and our contract manufacturers may not meet our future requirements for timely delivery. Our contract manufacturers also build products for other companies, and we cannot be assured that they will have sufficient quantities of inventory available to fill our customer orders or that they will allocate their internal resources to fill these orders on a timely basis. In addition, our utilization of contract manufacturers limits our ability to control the manufacturing processes of our products, which exposes us to risks including the unpredictability of manufacturing yields and a reduced ability to control the quality of finished products. Unforecasted customer demand may increase the cost to build our products due to fees charged to expedite production and other related charges.

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The contract manufacturing industry is a highly competitive, capital-intensive business with relatively low profit margins, in which acquisition activity is relatively common. 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 for any reason, our revenue, gross margins and customer relationships could be adversely affected.

We rely on single or limited sources for supply of certain components and our business may be seriously harmed if our supply of any of these components is disrupted.

We purchase several key components from single or limited sources. These key components include commercial digital signal processors, central processing units, field programmable gate arrays, switch fabric, and optical transceivers. We generally purchase our key components on a purchase order basis and have no long-term contracts for these components. In the event of a disruption in supply of key components, we may not be able to develop an alternate source in a timely manner or on favorable terms. Any such failure could impair our ability to deliver products to customers, which would adversely affect our revenue and operating results.

In addition, our reliance on key component suppliers exposes us to potential supplier production difficulties or quality variations. The loss of a source of supply for key components or a disruption in the supply chain could require us to incur additional costs to redesign our products that use those components.

During the past year, component suppliers have stabilized their production capacity to better match demand. If the demand for certain components increases beyond the component suppliers planned production capacity, there may be component shortages which increase procurement costs. In addition, increasing consolidation in the optical component industry could result in reduced competition and higher component prices. If any of these events occurred, our revenue and operating results could be adversely affected.

Our inability to anticipate inventory requirements may result in inventory charges or delays in product shipments.

During the normal course of business, we may provide demand forecasts to our contract manufacturers for up to six months prior to scheduled delivery of products to our customers. If we overestimate our product requirements, the contract manufacturers may assess cancellation penalties or we may have excess inventory which could negatively impact our gross margins. If we under estimate our product requirements, the contract manufacturers may have inadequate inventory that could interrupt manufacturing of our products and result in delays in shipment to our customers. We also could incur additional charges to manufacture our products to meet our customer deployment schedules.

Product performance problems could limit our current and future sales prospects.

If our products do not meet our customers’ performance requirements, our current and future prospects may be adversely affected. The design, development and deployment of our products often involve problems with software, components, manufacturing processes and interoperability with other network elements. If we are unable to identify and fix errors or other problems, or if our customers experience interruptions or delays that cannot be promptly resolved, we could experience:

• loss of revenue or delay in revenue recognition or accounts receivable collection;

• loss of customers and market share;

• inability to attract new customers or achieve market acceptance;

• diversion of development and other resources;

• increased service, warranty and insurance costs; and

• legal actions by our customers.

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These factors may adversely impact our revenue, operating results and financial condition. In addition, our products are often critical to the performance of our customers network. Generally, we seek to limit liability in our customer agreements. If these contractual limitations are not enforceable or if we are exposed to product liability claims that are not covered by insurance, a successful claim could harm our business.

Our business is subject to risks from international operations.

International sales represented 91% of total revenue in fiscal 2003, and 65% of total revenue in the first nine months of fiscal 2004, and our customer base is primarily international. We are subject to foreign exchange translation risk to the extent that our revenue is denominated in currencies other than the U.S. dollar. Doing business internationally requires significant management attention and financial resources to successfully develop direct and indirect sales channels and to support customers in international markets. We may not be able to maintain or expand international market demand for our products.

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 in compliance with local laws and customs;

• reliance on working with distribution partners for the resale of our products in certain markets and for certain types of product offerings, such as the integration of our products into third-party product offerings;

• necessity to work with third parties in certain countries to perform installation and obtain customer acceptance, and the resulting impact on revenue recognition;

• necessity to maintain staffing, or to work with third parties, to provide service and support in international locations;

• the impact of slowdowns or recessions in economies outside the United States;

• unexpected changes in regulatory requirements, including trade protection measures and import and licensing requirements;

• certification requirements;

• currency fluctuations;

• reduced protection for intellectual property rights in some countries;

• potentially adverse tax consequences; and

• political and economic instability, particularly in emerging markets.

These factors may adversely impact our revenue, operating results and financial condition.

We depend on our key personnel to manage our business effectively in a rapidly changing market, and if we are unable to retain our key employees, our ability to compete could be harmed.

We depend on 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 strategy. 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.

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All of our key employees have been granted stock-based awards that are intended to represent an integral component of their compensation package. These stock-based awards may not provide the intended incentive to our employees if our stock price declines or experiences significant volatility. The loss of the services of any of our key employees, the inability to attract and retain qualified personnel in the future, or delays in hiring qualified personnel could delay the development and introduction of, and negatively impact our ability to sell, our products.

We face certain litigation risks.

We are the defendant in a securities lawsuit and a party to other litigation and claims in the normal course of our business. Litigation is by its nature uncertain and there can be no assurance that the ultimate resolution of such claims will not exceed the amounts accrued for such claims, if any. Litigation can be expensive, lengthy, and disruptive to normal business operations. An unfavorable resolution of a particular lawsuit could have a material adverse effect on our business, operating results, or financial condition. For additional information regarding certain lawsuits in which we are involved, see Part II, Item 1—“Legal Proceedings”.

Our ability to compete could be jeopardized if we are unable to protect our intellectual property rights or infringe on intellectual property rights of others.

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. Litigation may be necessary to enforce our intellectual property rights. Any such litigation could result in substantial costs and diversion of resources and could have a material adverse affect on our business, operating results and financial condition.

Our industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding patents and other intellectual property rights. In the course of our business, we may receive claims of infringement or otherwise become aware of potentially relevant patents or other intellectual property rights held by other parties. We evaluate the validity and applicability of these intellectual property rights, and determine in each case whether we must negotiate licenses or cross-licenses to incorporate or use the proprietary technologies in our products.

Any parties asserting that our products infringe upon their proprietary rights would force us to defend ourselves, and possibly our customers, manufacturers or suppliers against the alleged infringement. Regardless of their merit, these claims could result in costly litigation and subject us to the risk of significant liability for damages. Such claims would likely be time consuming and expensive to resolve, would divert management time and attention and would put us at risk to:

• stop selling, incorporating or using our products that incorporate the challenged intellectual property;

• obtain from the owner of the intellectual property right a license to sell or use the relevant technology, which license may not be available on reasonable terms, or at all;

• redesign those products that use such technology; or

• accept a return of products that use such technologies.

If we are forced to take any of the foregoing actions, our business may be seriously harmed.

In addition, we license public domain software and proprietary technology from third parties for use in our existing products, as well as new product development and enhancements. We cannot be assured that such licenses will be

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available to us on commercially reasonable terms in the future, if at all. The inability to maintain or obtain any such license required for our current or future products and enhancements could require us to substitute technology of lower quality or performance standards or at greater cost, either of which could adversely impact the competitiveness of our products.

Any extension of credit to our customers may subject us to credit risks and limit the capital that we have available for other uses.

From time to time we have received requests for financing assistance from existing and prospective customers. In the near term, we expect these requests to continue. We believe the ability to offer financing assistance can be a competitive factor in obtaining business. In the past, we have provided extended payment terms on trade receivables to certain key customers to assist them with their network deployment plans. Such financing activities subject us to the credit risk of customers whom we finance. In addition, our ability to recognize revenue from financed sales will depend upon the relative financial condition of the specific customer, among other factors. We could experience losses due to customers failing to meet their financial obligations that could harm our business and materially adversely affect our operating results and financial condition.

Our stock price may continue to be volatile.

Historically, the market for technology stocks has been extremely volatile. Our common stock has experienced, and may continue to experience, substantial price volatility. The occurrence of any one or more of the factors noted above could cause the market price of our common stock to fluctuate significantly. In addition, 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;

• regulatory changes in telecommunications;

• variations between our actual results and the published expectations of securities analysts;

• changes in financial estimates by securities analysts;

• sales of our common stock or other securities in the future;

• 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

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periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against such companies.

Your ability to influence key transactions, including changes of control, may be limited by significant insider ownership, provisions of our charter documents and provisions of Delaware law.

As of April 24, 2004, our officers, directors and entities affiliated with them, in the aggregate, beneficially owned approximately 36% of our outstanding common stock. These stockholders, if acting together, would be able to significantly influence matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination transactions. In addition, 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 certain stockholders.

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Item 3. Quantitative and Qualitative Disclosure About Market Risk

Interest Rate Sensitivity

The primary objective of our current investment activities is to preserve investment principal while maximizing income without significantly increasing risk. 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 debt securities. These available-for-sale investments are subject to interest rate risk and may fall in value if market interest rates increase. If market interest rates increased immediately and uniformly by 10 percent from levels at April 24, 2004, the fair value of the portfolio would decline by approximately $1.1million. 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 investment portfolio.

Exchange Rate Sensitivity

While the majority of our operations are based in the United States, our business has become increasingly global, with international revenue representing 91% of total revenue in fiscal 2003, and 65% of revenue in the first nine months of fiscal 2004. We expect that international sales may continue to represent a significant portion of our revenue. Fluctuations in foreign currencies may have an impact on our financial results, although to date the impact has not been material. We are prepared to hedge against fluctuations in foreign currencies if the exposure is material, although we have not engaged in hedging activities to date.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. Based on our management’s evaluation (with the participation of our principal executive officer and principal financial officer), as of the end of the period covered by this report, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Control over Financial Reporting. There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our third fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls. Our management has concluded that our disclosure controls and procedures and internal controls provide reasonable assurance that the objectives of our control system are met. However, our management (including our chief executive officer and chief financial officer) does not expect that the disclosure controls and procedures or internal controls will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, errors and instances of fraud, if any, within the company have been or will be detected.

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Part II. Other Information

Item 1. Legal Proceedings

Beginning on July 2, 2001, several purported class action complaints were filed in the United States District Court for the Southern District of New York against the Company and several of its officers and directors (the “Individual Defendants”) and the underwriters for the Company’s initial public offering on October 21, 1999. Some of the complaints also include the underwriters for the Company’s follow-on offering on March 14, 2000. The complaints were consolidated into a single action and an amended complaint was filed on April 19, 2002. The amended complaint, which is the operative complaint, was filed on behalf of persons who purchased the Company’s common stock between October 21, 1999 and December 6, 2000. The amended complaint alleges violations of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, primarily based on the assertion that the Company’s lead underwriters, the Company and the other named defendants made material false and misleading statements in the Company’s Registration Statements and Prospectuses filed with the SEC in October 1999 and March 2000 because of the failure to disclose (a) the alleged solicitation and receipt of excessive and undisclosed commissions by the underwriters in connection with the allocation of shares of common stock to certain investors in the Company’s public offerings and (b) that certain of the underwriters allegedly had entered into agreements with investors whereby underwriters agreed to allocate the public offering shares in exchange for which the investors agreed to make additional purchases of stock in the aftermarket at pre-determined prices. The amended complaint alleges claims against the Company, several of the Company’s officers and directors and the underwriters under Sections 11 and 15 of the Securities Act. It also alleges claims against the Company, the Individual Defendants and the underwriters under Sections 10(b) and 20(a) of the Securities Exchange Act. The amended complaint seeks damages in an unspecified amount.

The action against the Company is being coordinated with approximately three hundred other nearly identical actions filed against other companies. The actions seek damages in an unspecified amount. On October 9, 2002, the court dismissed the Individual Defendants from the case without prejudice based upon Stipulations of Dismissal filed by the plaintiffs and the Individual Defendants. The Company has approved a Memorandum of Understanding (“MOU”) and related agreements which set forth the terms of a proposed settlement between the Company and the plaintiff class. Among other provisions, the settlement contemplated by the MOU provides for a release of the Company and the Individual Defendants with respect to claims related to the conduct alleged in the action to be wrongful. Pursuant to the settlement contemplated by the MOU, the Company would agree to undertake certain responsibilities, including agreeing to assign to the plaintiffs, and not otherwise assert or release, certain potential claims the Company may have against its underwriters. It is anticipated that any potential financial obligation of the Company to plaintiffs pursuant to the terms of the MOU and related agreements will be covered by existing insurance. Therefore, the Company does not expect that the settlement will involve any payment by the Company. The MOU and related agreements are subject to a number of contingencies, including the negotiation of a settlement agreement and its approval by the Court. The Company is unable to determine whether or when a settlement will occur or be finalized. In the event that a settlement is not finalized, the Company is not currently able to estimate the possibility of loss or range of loss, if any, relating to these claims. Due to the large number of nearly identical actions, the Court has ordered the parties to select up to twenty “test” cases. To date, along with eleven other cases, the Company’s case has been selected as one such test case. As a result, among other things, the Company will be subject to discovery obligations and expenses in the litigation, whereas non-test case issuer defendants will not be subject to such obligations.

On April 1, 2003, a complaint was filed against the Company in the United States Bankruptcy Court for the Southern District of New York by the creditors’ committee (the “Committee”) of 360networks (USA), inc. and 360networks services inc. (the “Debtors”). The Debtors are the subject of a Chapter 11 bankruptcy proceeding but are not plaintiffs in the complaint filed by the Committee. The complaint seeks recovery of alleged preferential payments in the amount of approximately $16.1 million, plus interest. The Committee alleges that the Debtors made the preferential payments under Section 547(b) of the Bankruptcy Code to the Company during the 90-day period prior to the Debtors’ bankruptcy filings. The Company believes that the claims against it are without merit and intends to defend against the complaint vigorously. The Company is not currently able to estimate the possibility of loss or range of loss, if any, relating to these claims.

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The Company is subject to legal proceedings, claims, and litigation arising in the ordinary course of business. While the outcome of these matters is currently not determinable, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on the Company’s results of operations or financial position.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

In the three months ended April 24, 2004, the Company purchased the following shares of common stock (in thousands, except per share data):

	Total shares purchased *	Average price paid per share
January 25, 2004 - February 21, 2004	17	$	0.09
February 22, 2004 - March 20, 2004	1		0.00
March 21, 2004 - April 24, 2004	6		0.04
Total	24	$	0.07

^* Purchased from departing employees pursuant to preexisting contractual rights.

The Company has not publicly announced programs to repurchase shares of common stock.

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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 of the Company (2)
3.2	Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company (2)
3.3	Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company (3)
3.4	Amended and Restated By-Laws of the Company (2)
4.1	Specimen common stock certificate (1)
4.2	See Exhibits 3.1, 3.2, 3.3 and 3.4, for provisions of the Certificate of Incorporation and By-Laws of the Registrant defining the rights of holders of common stock of the Company (2)(3)
* 10.2	Exhibit I dated February 25, 2004 to the Reseller Agreement dated January 6, 2004 between Sprint and Sycamore Networks, Inc.
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1) Incorporated by reference to Sycamore Networks, Inc.’s Registration Statement on Form S-1 (Registration Statement No. 333-84635).

(2) Incorporated by reference to Sycamore Networks, Inc.’s Registration Statement on Form S-1 (Registration Statement No. 333-30630).

(3) Incorporated by reference to Sycamore Networks, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended January 27, 2001 filed with the Securities and Exchange Commission on March 13, 2001.

* Confidential treatment requested for certain portions of this Exhibit pursuant to Rule 24b-2 promulgated under the Securities Exchange Act, which portions are omitted and filed separately with the Securities and Exchange Commission.

(b) Reports on Form 8-K: On February 10, 2004, the Company furnished a Current Report on Form 8-K under Item 12 containing the press release relating to its second quarter fiscal 2004 results.

35

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: May 13, 2004

36

EXHIBIT INDEX

Number	Exhibit Description
3.1	Amended and Restated Certificate of Incorporation of the Company (2)
3.2	Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company (2)
3.3	Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company (3)
3.4	Amended and Restated By-Laws of the Company (2)
4.1	Specimen common stock certificate (1)
4.2	See Exhibits 3.1, 3.2, 3.3 and 3.4, for provisions of the Certificate of Incorporation and By-Laws of the Registrant defining the rights of holders of common stock of the Company (2)(3)
*10.2	Exhibit I dated February 25, 2004 to the Reseller Agreement dated January 6, 2004 between Sprint and Sycamore Networks, Inc.
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1) Incorporated by reference to Sycamore Networks, Inc.’s Registration Statement on Form S-1 (Registration Statement No. 333-84635).

(2) Incorporated by reference to Sycamore Networks, Inc.’s Registration Statement on Form S-1 (Registration Statement No. 333-30630).

(3) Incorporated by reference to Sycamore Networks, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended January 27, 2001 filed with the Securities and Exchange Commission on March 13, 2001.

* Confidential treatment requested for certain portions of this Exhibit pursuant to Rule 24b-2 promulgated under the Securities Exchange Act, which portions are omitted and filed separately with the Securities and Exchange Commission.

37

EX-10.2

Exhibit 10. 2

Exhibit I

United States Reseller Agreement

Between

Sycamore Networks, Inc.

And

Sprint Communications Company, L.P.

Government Systems Division

Global Information Grid

Bandwidth Expansion (GIG BE)

Hardware And Software

Technical Package

Sprint-Sycamore Proprietary Information

This Exhibit I, effective February 25, 2004 is made between Sprint Communications Company, L.P., Government Systems Division (hereinafter known as “Sprint” or “Prime Contractor), a Delaware limited partnership with principal offices in Herndon, Virginia, and Sycamore Networks, Inc. (“Sycamore or “Supplier”), a Delaware Corporation, with principal offices in Chelmsford, MA and is attached to and incorporated under the to the United States Reseller Agreement between Sycamore Networks, Inc. and Sprint Communications Company, L.P. Government Systems Division effective January 6, 2004 the (“Reseller Agreement”). The effort to be performed by Sycamore under this Exhibit will be part of Sprint’s Subcontract Agreement with Science Applications International Corporation’s (“SAIC”) Prime Contract # DCA200-02-D-5001 (“Prime Contract”) that has been issued by Defense Information Systems Agency (“Customer”). The Work, defined in Attachment II (Statement of Work and Schedule) will be performed on a Indefinite Delivery/Indefinite Quantity basis, with task orders awarded using one of three Exhibit types: Firm Fixed Price, Time & Materials, and Fixed Price/Level of Effort, in accordance with Schedule A (Specific Terms and Conditions) and any referenced document in section 22.0 of this Exhibit.

SCHEDULE - A - SPECIFIC TERMS AND CONDITIONS

1.0 Definitions

The terms defined below have the meanings ascribed to them herein and include the plural as well as the singular.

Sprint shall mean Buyer.

Exhibit shall mean this Schedule A and all exhibits and attachments hereto.

Backwards Compatibility means the referenced prior Software Feature Enhancement revision level(s) of the applicable Equipment/Hardware remain fully functional after the integration with the respective [*] succeeding Software Feature Enhancement revision levels and that after such integration the prior Software Feature Enhancement revision level(s) do not lose any functionality and the new revision level(s) interoperates with all functionalities of the prior [*] Software Feature Enhancement revision levels.

EFI&T Services means engineering, furnishing, installation, and testing services.

Equipment Feature Enhancement means (i) feature enhancements that materially improve functionality or performance of Equipment/Hardware and that Supplier markets as separate commercially available product or (ii) custom developed features for Customer or another customer of Supplier.

Equipment/Hardware means Supplier network Equipment/Hardware including but not limited to data processing and similar Equipment/Hardware, and also includes options, accessories and attachments for more basic Equipment/Hardware. Equipment/Hardware includes as a component thereof any Media fixedly embedded therein in that it is not normally replaced except for maintenance and repair. Equipment/Hardware may include in its meaning, depending upon context, a system or systems consisting of tangible Equipment/Hardware and intangible Software.

Equipment Modifications means any patch, fix, alteration, improvement, correction, revision, release, new version or any other change to the Equipment that is required to address a field-affecting change, except for Equipment Feature Enhancements.

Sprint-Sycamore Proprietary Information 2

Hourly Services means those services set out in Attachment I for which Sycamore will invoice and Sprint will pay on a fixed price, hourly basis.

Maintenance Services has the meaning specified in Section 8.1 hereof.

Media or Medium means any document, print, tape, disc, tool, semiconductor chip or other tangible information-conveying item.

Order means Sprint’s form of purchase order used for the purpose of ordering Equipment/Hardware, Software and/or Services.

Services means individually and collectively, any of the services set forth under this Exhibit that Sprint may obtain from Sycamore including but not limited to maintenance, engineering, installation, training, data management, program management, project management, commissioning, testing, Maintenance Services, EFTI&T Services, Hourly Services, technical assistance service with respect to products and installation, and consulting.

Software means intangible information constituting one or more computer or apparatus programs and the informational content of such programs, together with any documentation supplied in conjunction with and supplementing such programs, the foregoing being provided to Sprint by way of electronic transmission or by being fixed in Media furnished to Sprint.

Software Feature Enhancement means (i) feature enhancements that materially improve functionality or performance of Software and that Sycamore markets as a separate commercially available product or (ii) custom-developed features for Customer or another customer of Sycamore. A Software Feature Enhancement in Sycamore’s revision level numbering convention is denominated by the second character of its numbering system. For example, in the Revision Level 6.2.1, the “Software Feature Enhancement” number is “2”.

Software Upgrade means any commercially available upgrade, enhancement, modification, patch, fix, alteration, improvement, correction, revision, release, new version or any other change to the Software or Documentation, except for Software Feature Enhancements. A Software Upgrade in Sycamore’s Revision Level numbering convention is denominated by the third character of its numbering system. For example, in the Revision Level 6.2.1, the “Software Upgrade” number is “1”.

Software Source Material means information consisting of all intangible source programs, technical documentation and other information required for maintenance, modification or correction of the most current version of the Software supplied to Sprint.

Specifications means the SOW, as set forth in Attachment (II) hereto, or if not so set forth, shall mean Sycamore’s current applicable published specifications and user documentation for the deliverable as of the date of the Exhibit and any additional specifications furnished by Sprint and accepted by Sycamore.

Use means use by any individual having authorized access to the computer on which the Software is operated.

Work means (1) the provision of maintenance or other Services under this Exhibit and (2) the subject matter of Services called for by any Order or specifications.

Sprint-Sycamore Proprietary Information 3

2.0 Indefinite Quantity

(a) The term of this Exhibit shall commence upon the date of issuance of the initial Order (“the Effective Date”) and shall terminate on [*] unless Sprint exercises its option to extend the period of performance or otherwise change this Exhibit in accordance with paragraph 5.0. These dates are set to coincide with the current period of performance under SAIC’s Prime Contract.

(b) The quantities, if any, of Equipment/Hardware, Software, hours or Services specified in Attachment (I) are estimates only and are not purchased under this Exhibit. All prices and rates shall be fixed for the term of this Exhibit except for EFI&T services pricing which will be negotiated and mutually agreed to by the parties on a node-by-node basis. Prices for Services ordered pursuant to the terms of this Exhibit shall apply only to work to be performed in the 48 contiguous states and the District of Columbia unless mutually agreed to in writing.

(c) Delivery or performance shall be made only as authorized by Orders issued in accordance with clause 5.1--- PURCHASE ORDERS --- below. Sycamore shall furnish to Sprint, when ordered, the Equipment/Hardware, Software, hours or Services specified in Attachment (II). Except for Services, there are no minimum or maximum amounts.

(d) There is no limit on the number of orders that may be issued under this Exhibit. Sprint may issue orders requiring delivery to multiple destinations or performance at multiple locations in accordance with Section 6.2.

(e) Any order issued but not completed during the effective period of this Exhibit shall be completed by Sycamore within the time specified under the associated Order. The Exhibit shall govern Sycamore’s and Sprint’s rights and obligations with respect to the associated Order to the same extent as if the Order were completed during the Exhibit’s effective term; provided, that Sycamore shall not be required to make any deliveries under this Exhibit or associated Orders issued after [*], unless option years are exercised by Sprint.

(f) Exclusivity of supply is neither implied nor intended and Sprint is free to purchase the same or similar services from sources other than Sycamore.

(g) Sprint may substitute new technology services or current services of other suppliers that offer price/performance benefits in place of those Services included in Attachment (I).

2.1 Labor Rates

Sycamore’s hourly labor rates for Hourly Services that will be effective through the period of performance under this Exhibit are set out in Attachment (I) [*].

These hourly rates for Hourly Services shall remain fixed for the period of performance under this Exhibit.

2.2 Inspection and Acceptance

Sprint will inspect, [*] business days of delivery. Such acceptance [*]. Except for those circumstances specified in [*].

Sprint-Sycamore Proprietary Information 4

2.2.1 Equipment/Hardware/Software

(a) Definition. “Supplies” as used in this clause, includes but is not limited to raw materials, components, intermediate assemblies, end products, and lots of supplies. As used in this Exhibit, “acceptance” shall occur in accordance with Section 2.2 above.

(b) Sycamore shall provide and maintain an inspection system acceptable to Sprint covering supplies under this Exhibit and shall tender to Sprint for acceptance only supplies that have been inspected in accordance with the inspection system and have been found by Sycamore to be in conformity with the Exhibit requirements. As part of the system, Sycamore shall prepare records evidencing all inspections made under the system and the outcome under this Exhibit. These records shall be kept complete and made available to Sprint during Exhibit performance and until 3 years after final payment under this Exhibit or any Order. Sprint may perform reviews and evaluations as reasonably necessary to ascertain compliance with this paragraph. These reviews and evaluations shall be conducted in a manner that will not unduly delay any of the Exhibit Work. The right of review, whether exercised or not, does not relieve Sycamore of its obligations under the Exhibit and/or as agreed to by the parties.

(c) Sprint has the right to inspect and test all supplies called for under the Exhibit, to the extent practicable, at all reasonable places and times, including the period of manufacture, and in any event before acceptance. Sprint shall perform inspections and tests in a manner that will not unduly delay the Work. Sprint assumes no obligation to perform any inspection and/or test for the benefit of Sycamore unless specifically set forth elsewhere under this Exhibit and/or as agreed to by the parties.

(d) If Sprint performs inspection or test on the premises of Sycamore or a lower-tier subcontractor, Sycamore shall furnish, and shall require the lower-tier subcontractor to furnish, at no increase in the Exhibit price, all reasonable facilities and assistance for the safe and convenient performance of these duties. Except as otherwise provided under the Exhibit, Sprint shall bear the expense of Sprint inspections or tests made at other than Sycamore’s or the lower-tier subcontractor’s premises; provided, that in case of rejection, Sprint shall not be liable for any reduction in the value of inspection or test samples.

(e) (1) When supplies are [*] at the time specified by Sycamore for [*] Sprint may [*]. (2) Sprint may [*].

(f) [*] of items which are not in accordance with the instructions and terms and conditions under this Exhibit, [*] or Sycamore’s express warranty. [*] in accordance with Section 2.2 above [*] including any packaging, handling, and transportation charges both ways. [*] shall be made unless specified by Sprint in writing to Sycamore.

(g) [*] shall remove supplies [*]. However, [*] may [*] in place, promptly after notice, [*]. Sycamore shall not [*] without disclosing the [*], and, when required, shall disclose the [*] taken.

(h) If Sycamore [*], Sprint may either; [*] Unless Sycamore [*] Sprint may require their [*] Failure for the parties to agree to a [*] shall be a dispute under the Exhibit. If this Exhibit provides for the performance of Sprint quality assurance at source, and if requested by Sprint, Sycamore shall furnish advance notification of the time (1) when Sycamore inspection or tests will be performed in accordance with the terms and conditions under the Exhibit; and (2) when the supplies will be ready for Sprint inspection.

Sprint-Sycamore Proprietary Information 5

(i) Sprint’s request shall specify the period and method of the advance notification and the Sprint representative to whom it shall be furnished. Requests shall not require more than [*] of advance notification if the Sprint representative is in residence in Sycamore’s plant, nor more than [*] in other instances.

(j) Inspections and tests [*].

(k) Acceptance shall be [*].

(l) [*], in addition to any other rights and remedies provided by law, or under other provisions of this Exhibit, shall have the right to require [*] and in accordance with a reasonable delivery schedule as may be agreed upon between Sycamore and Sprint; provided, that [*] such delivery schedule, or (ii) within a reasonable time after [*] When supplies are [*],[*] shall bear the transportation cost from the original point of delivery to Sycamore’s plant and return to the original point when that point is not Sycamore’s plant. If [*] to perform or act as required in (1) or (2) above and [*] within a period of [*] days (or such longer period as [*] Sprint shall have the right under this Exhibit or otherwise [*]

2.3 Services

If any of the Services do not conform with Exhibit requirements, [*] to perform the Services [*]. When the defects in services cannot be corrected by re-performance, [*] that future performance conforms to Exhibit requirements; and (2) [*] of the particular services performed.

If Sycamore [*] in conformity with Exhibit requirements, [*]; (1) by subcontract or otherwise, perform the services and [*] that is directly related to the performance of such service; or (2) [*] under the Exhibit for default.

2.4 Invoices

2.4.1a - Material Invoices

Invoices shall be prepared in duplicate in accordance with the requirements of the Reseller Agreement.

2.4.1b – Labor Invoices

Invoices shall be prepared in duplicate and contain the following information; Order number, subproject number (if applicable), labor categories, hourly rates, labor hours, extended totals by category, material and other direct costs detail shall be separated from labor costs. Invoices must be submitted within thirty (30) calendar days after the close of each billing period.

Invoices will be mailed to the address identified in the Reseller Agreement.

[*]. The following statement will be executed for all invoices whose billing rates are based on Hourly Services [*], “I have reviewed the [*] whose labor costs are being invoiced hereunder and hereby [*].”

Sprint-Sycamore Proprietary Information 6

2.4.4 Payment

(a) Sprint shall pay Sycamore in accordance with the terms of the Reseller Agreement, except that Sprint may make any adjustments in Sycamore’s invoices due to shortages, late delivery, rejections, or other failure to comply with the requirements under this Exhibit before payment provided Sprint has fully disclosed to Sycamore prior to any adjustment the nature and rationale for such adjustment.

(b) Hourly rate. The amounts shall be computed by multiplying the appropriate hourly rates in Section 2.1 by the number of direct labor hours performed. Invoices may be submitted once each month to Sprint. Sycamore shall substantiate invoices by individual daily job time cards. Sprint shall review, and accept or reject Sycamore’s invoices within [*] business days of receipt and shall pay the invoice within [*] days after receipt by Sprint. Overtime rates are not authorized unless negotiated and approved by Sprint in writing.

(c) Travel and Expenses in accordance with Joint Travel Regulation will be reimbursed on an actual-cost basis in accordance with consistently applied Generally Accepted Accounting Principles.

(d) Total cost. It is estimated that the total cost to Sprint for the performance of Hourly Services under any Order shall not exceed the ceiling price included in that Order. Sycamore agrees [*] the Hourly Services Work within the ceiling price of the applicable Order. If at any time Sycamore has reason to believe that the total price to Sprint for the Hourly Services included in any Order will be substantially greater or less than the ceiling price, Sycamore shall notify Sprint and provide a revised estimate for performing the Work authorized by that Order

2.5 Audit

With respect to Hourly Services and travel and related expenses, at any time before final payment Sprint may request and perform an audit of the invoices and substantiating material. Each payment previously made shall be subject to reduction to the extent of amounts [*] not to have been properly payable in accordance with the payment terms under this Exhibit. Audit may include individual daily job time cards, expense reports, or other documentation to substantiate supporting invoiced amounts.

3.0 Warranty

Sycamore represents and warrants (1) that [*] for the goods and/or services purchased pursuant hereto shall be [*] of such goods or services; (2) that all goods and services delivered pursuant hereto [*], unless otherwise specified, [*]; (3) that the goods covered by this Exhibit are [*], if so intended and will be provided in accordance with Sycamore’s [*] described herein. All representations and warranties of Sycamore together with its Equipment/Hardware, Software and Service warranties and guarantees, if any, shall [*]. All warranties [*] delivery, inspection, acceptance, or payment by Sprint.

3.0.1 Equipment/Hardware Warranty

Sycamore warrants that all Equipment/Hardware purchased by Sprint under this Exhibit shall be free from defects in material and workmanship and materially conform to Sycamore’s then-current published Specifications (at time of shipment) for the most current release of such Equipment/Hardware for a period of [*] from the date of shipment by Sycamore. During the warranty period, as Sprint’s sole and exclusive remedy, Sycamore will, at its option and expense, repair, modify or replace the Equipment/Hardware, part or component after the defective product

Sprint-Sycamore Proprietary Information 7

has been returned to Sycamore. To obtain warranty service, Sprint must return the Equipment/Hardware, part or component to Sycamore’s factory after receiving a Return Materials Authorization Number. During warranty, Sycamore at its option will ship repaired or replacement FRUs to Sprint on an advance replacement basis; all eligible Advance Exchange Return Material Authorization (RMA) requests for replacement products received before 3:00 p.m. Eastern Time (Monday-Friday on a Sycamore business day) will be shipped at Sycamore’s expense the same day to the designated location; all eligible Advance Exchange Return Material Authorization (RMA) requests made after 3:00 p.m. Eastern Time (Monday-Friday on a Sycamore business day) will be shipped at Sprint’s expense the following Sycamore business day to the designated location. The warranty on repaired, modified, or replaced Equipment/Hardware shall be (i) the remainder of the original warranty period or (ii) [*], whichever is longer. This Equipment/Hardware warranty does not, however, apply to any product which (i) has been altered, except as authorized in writing by Sycamore, (ii) has not been installed, operated, repaired or maintained in accordance with any Sycamore installation, handling, maintenance or operating instructions, (iii) has been subjected to unusual physical or electrical stress, misuse, negligence, or accident or (iv) is being used with products with which it was not designed to operate. Sprint’s sole and exclusive remedy shall be limited to the express remedies set forth in the warranty.

3.0.2 Software Warranty

Sycamore warrants that with normal use and service each Software or firmware product shall materially conform to Sycamore’s then-current published Specifications (at time of shipment) for the most current release of such Software or firmware product for a period of [*] from the date of shipment by Sycamore. During the warranty period, as Sprint’s sole and exclusive remedy, Sycamore will either (i) use commercially reasonable efforts to provide, on a non-priority basis, correction or workaround of the problem by means of telephone support, including patches, corrective software releases or other means reasonably determined by Sycamore to correct a Software product’s failure to conform to the warranty, provided that Sprint has notified Sycamore in writing of the nature of the non-conformity; or (ii) replace the Software product with a software product meeting Sycamore’s then-current published Specifications. This warranty shall not apply if any Software or firmware product has been (i) modified or altered by anyone other than Sycamore, (ii) abused or misapplied, (iii) used in combination with hardware or software other than Sycamore manufactured products for which it was designed; or (iv) the alleged defect is due to causes not within Sycamore’s reasonable control. The warranty period for the replaced product shall be [*] from the date of shipment of the replaced product or the remainder of the Warranty Period of the original unit, whichever is greater. Sprint’s sole and exclusive remedy shall be limited to the express remedies set forth in the warranty. In no event does Sycamore warrant that the use of Software or firmware products will be error free or uninterrupted, or that all program errors will be corrected; Sycamore does not warrant compatibility of software with software or hardware of any kind or source.

Standard Software Warranty includes:

• [*] including applicable documentation, are available either electronically (www.sycamorenet.com) or on physical media (CD, etc.) during the software maintenance period.

• [*] as it becomes available for general release, relating to [*].

Sprint-Sycamore Proprietary Information 8

Sycamore warrants, except as stated in Sycamore’s published Specifications, that any Software provided to Sprint by Sycamore shall, to Sycamore’s knowledge as of the date of this Exhibit: (a) contain no hidden files; (b) not replicate, transmit, or activate itself without control of a person operating computing equipment on which it resides; (c) not alter, damage, or erase any data or computer programs without control of a person operating the computing equipment on which it resides; or (d) contains no encrypted embedded key unknown to customer, node lock, time-out or other function, whether implemented by electronic, mechanical or other means, which restricts or may restrict use of access to any programs or data developed, based on residency on a specific hardware configuration, frequency of duration of use, or other limiting criteria.

3.0.3 Services Warranty

Sycamore warrants that Services will be performed in a workmanlike manner in accordance with standards generally accepted in the industry. As Sycamore’s sole obligation and Sprint’s exclusive remedy, Sycamore will re-perform, at no charge, any Service which fails to materially conform to this warranty provided Sycamore is notified in writing of the non-conformance within [*] of the performance of the non-conforming service.

[*].

Sprint shall have the right to require, at any time, that Sycamore offer under this Exhibit [*] available to Sycamore’s commercial customers. In this way, Sprint seeks to ensure that it can obtain the benefits of [*] components currently under the Exhibit.

When requested or offered, Sycamore shall provide, [*], a proposal for the [*] proposals shall be submitted in accordance with [*]. Proposals shall include [*] sufficient to evaluate each [*] Each [*] must correspond with an existing [*] and satisfy all original mandatory requirements in the Specification under this Exhibit. Prices offered shall reflect the [*] established in the Exhibit for each [*] or the [*] of such goods or services, whichever is [*].

5.0 Options To Extend The Term Of The Exhibit

This Exhibit is renewable at the prices stated in Attachment (I) to the Exhibit, at the option of Sprint, by giving written notice of renewal to Sycamore by the first day of October of each year. Sprint may only elect not to renew this Exhibit if and to the extent that SAIC fails to renew Sprint’s subcontract with SAIC with respect to the provision of Sycamore’s Equipment/Hardware, Software and/or Services. The term of this Exhibit, as renewed, shall be deemed to include this option provision. However, the term of this Exhibit, including the exercise of any options under this clause, shall not exceed [*].

[*]	[*]	[*]
Base [*]	N/A	From Award through [*]
Option [*] 1	Starting [*]	[*] from Base Period [*]
Option [*] 2	Starting [*]	[*] from Option Year 1 [*]
Option [*] 3	Starting [*]	[*] from Option Year 2 [*]
Option [*] 4	Starting [*]	[*] from Option Year 3 [*]

Sprint-Sycamore Proprietary Information 9

First Award Term Period (if earned)	Starting [*]	[*] following Option Year 4 [*]
Second Award Term Period (if earned)	Starting [*]	[*] following the first award term [*]
Third Award Term Period (if earned)	Starting [*]	[*] following the second award term [*]
Fourth Award Term Period (if earned)	Starting [*]	[*] following the third award term [*]

5.1 Purchase Orders

(a) Only Sprint’s authorized Supply Chain Management Representative is authorized to place Orders under this Exhibit.

(b) All Orders issued hereunder are subject to the terms and conditions of this Exhibit. The Exhibit shall control in the event of conflict with any Order. When received, an Order shall be “issued” for purposes of this Exhibit at the time Sycamore receives an electronic copy, or, if transmitted by other means, when physically delivered to Sycamore.

(c) The proposal shall include Equipment/Hardware, Software and Services, in accordance with the pricing contained in Attachment (I). Additionally, a time and materials proposal shall contain the number of hours required for performance of the task. The proposal must identify and justify use of all non-labor cost elements such as travel. It must also identify any Government-Furnished Information (GFI) required for performance. If travel is specified in the statement of work (SOW), airfare and per diem rates by total days, number of trips and number of Sycamore’s employees traveling shall be included in the cost proposal.

(d) In addition to any other data that may be called for under the Reseller Agreement, the following information shall be specified in each Order, as applicable:

• Date of order

• Exhibit and order number

• Statement of work

• Period of performance

• Place of performance

• Acceptance criteria

• Sprint furnished material/value

• Estimated categories/hours

• Not-To-Exceed Price

* H/W, S/W Ordered & Prices

(e) The information contained in each EFI&T, Maintenance or Hourly Services Order respecting labor categories/hours, period of performance, and the Not-To-Exceed (NTE) or fixed Price shall be the result of either Sprint’s estimate of the number of hours for an Hourly Services Order, the prices established in the Exhibit or the negotiated fixed price reached by the parties in advance of Order issuance. Provided Maintenance Services have been ordered by SAIC, each Equipment/Hardware Order shall contain a line item for Maintenance Services.

(f) Upon receipt of the Order, if Sycamore considers the labor categories/hours, period of performance for the Services, or the Not-To-Exceed or fixed Price to be unreasonable or inaccurate, it shall promptly notify Sprint in writing, stating why it considers unreasonable or inaccurate the labor categories/hours, period of performance, or the applicable Not-To-Exceed or fixed Price. Notwithstanding this notification, Sycamore shall, without delay, provide the Services ordered and accomplish the Work to the [*] subject to the provisions at [*] and [*]. Provided, however, that, with respect to any Hourly Services Order, in no event shall Sycamore be [*].

Sprint-Sycamore Proprietary Information 10

(g) Orders may only be modified in writing by Sprint’s Supply Chain Management Representative and Sycamore. Modifications to Orders shall include the information set forth in paragraph (c) above, as applicable. Sprint’s Supply Chain Management Representative in emergency circumstances may modify orders orally. Oral modifications shall be confirmed by issuance of a written modification within [*] from the time of the oral communication modifying the Order. Sycamore has the right to rely on oral communications until either confirmation or denial of such modification is made in writing. Sprint shall pay Sycamore for all work completed up to the effective date of Sprint’s written denial of any oral modification to Orders, or parts thereof, upon which Sycamore has initiated work.

5.2 Notice Regarding Late Delivery

In the event Sycamore anticipates difficulty in complying with the delivery dates, Sycamore shall [*] notify Sprint orally and in writing (Email is preferred) giving pertinent details, including the date by which Sycamore expects to make delivery. This data shall be informational in nature, and Sycamore shall not construe receipt of this information as a waiver by Sprint of any schedule, rights or remedy under this Exhibit.

5.3 Statement of Purchases.

Sycamore agrees to sell and Sprint agrees to purchase Equipment/Hardware, Software and Services, in accordance with the terms and conditions stated in this Exhibit and the Reseller Agreement. Equipment/Hardware, Software and Services are collectively referred to as “Deliverables”. Deliverables furnished under this Exhibit will be on an “as ordered” basis. Sprint has no obligation to purchase Deliverables.

5.4 Survival of Obligations

Notwithstanding any other provision of this Exhibit, it is agreed that certain obligations of the parties as stated under this Exhibit, which by their nature would continue beyond the termination, cancellation, or expiration of this Exhibit, shall survive termination, cancellation or expiration of this Exhibit. Such obligations include, by way of illustration only and not limitation, those contained in the clauses herein entitled INDEMNITY, INSURANCE and RELEASES VOID, and Sycamore obligations under sections identified as INTELLECTUAL PROPERTY RIGHTS and WARRANTY.

6.0 Ordering and Delivery

6.1 Form of Order

Each Order shall be deemed to incorporate the terms and conditions of this Exhibit and the Reseller Agreement. Sycamore shall provide to Sprint an acknowledgment of receipt of each Order in electronic or written format within [*] after its receipt. Sycamore [*] Sprint if at any time it determines it is unable to fulfill the Order or any of the conditions or requirements of the Order. Such notification shall be oral followed by written confirmation within [*] of receipt of the Order. However, such notification by Sycamore shall not in any case affect Sprint’s rights and remedies available under this Exhibit, the Reseller Agreement or otherwise for Sycamore’s failure or inability to comply with any Order under this Exhibit. In the absence of such notification, the Order shall be deemed accepted [*] business days after Sycamore’s receipt of the Order. Sycamore shall not reject any Order, which complies with the terms under this Exhibit.

Sprint-Sycamore Proprietary Information 11

6.2 Shipping

Unless otherwise directed, all Equipment/Hardware/Software, under this Exhibit, will be shipped via [*] to a Sprint or SAIC location within the contiguous 48 states that will be identified at a later date.

Sycamore shall use DD Form 250 for shipping to Sprint or SAIC, acceptance of [*] and for initiation of [*] which runs from the date of shipment by Sycamore. Sprint will provide guidance to Sycamore on the proper [*] the DD Form 250. Sycamore shall ensure that [*] are accessible without the necessity for [*]. Sycamore can either package so that opening of the carton flap or employing a tear-away perforation tactic will expose the serial number. Sycamore shall also ensure serial number is labeled on the shipping container for easy accountability during transshipment.

All Equipment/Hardware/Software will be shipped from Sycamore to Sprint or SAIC with bar-coding. Sycamore will provide Sprint with the specific bar-coding convention to be used with its Equipment/Hardware/Software shipments.

6.3 CFC Packaging

Sycamore shall abide by the applicable laws and guidelines covering commercial packaging, packing, and shipping within the continental United States. If requested on the Order material shall be packed for transshipment, to include overseas, ensuring acceptance by common carrier and safe delivery at destination. Containers and closures shall comply with the Interstate Commerce Commission regulations, Uniform Freight Classification Rules, or regulations of other carriers as applicable to the mode of transportation.

Sycamore warrants that all packaging materials furnished under this Exhibit and all packaging associated with material furnished under this Exhibit were not manufactured using and do not contain chlorofluorocarbons. “Packaging,” means all bags, wrappings, boxes, cartons and any other packing materials used for packaging. Sycamore shall indemnify and hold Sprint harmless for any liability, fine or penalty incurred by Sprint to any third party or Sprint’s customer arising out of Sprint’s good faith reliance upon said warranty. Packaging shall be in accordance with the SOW, Integrated Logistics and Support (“ILS”) paragraph 4.6.2.3 titled, Product Supply Support.

6.4 Delivery Intervals

Sprint shall specify the delivery date for Equipment/Hardware and, if applicable, the job completion date for Services, on the Order. After Sycamore has acknowledged and accepted the Order in accordance with the clause FORM OF ORDER, and if Sycamore exceeds the agreed to delivery or EFI&T Services job completion date, then in addition to all other rights and remedies at law or equity or otherwise, and without any liability or obligation of Sprint, Sprint shall have the right to: (a) cancel such Order in whole or in part if Sprint is in receipt of a similar notification from SAIC that cancels Sprint’s order in whole or in part for the same Hardware/Equipment, Software or Services, or (b) extend such delivery or job completion date to a later date, subject, however, to the right to cancel as in (a) preceding if delivery is not made or performance is not completed on or before such extended delivery or job completion date. If Sprint elects to extend such Equipment/Hardware delivery or EFI&T job completion date, Sycamore agrees to absorb the difference between the charges to ship normal transportation and the charges to ship premium overnight. Sycamore agrees not to deliver Deliverables prior to the agreed upon delivery date without Sprint’s prior written authorization. Sycamore agrees to meet the following delivery intervals:

Equipment/Hardware and Maintenance Services

Furnish only (includes configuration validation): [*].

Sprint-Sycamore Proprietary Information 12

7.0 Purchase of Product

7.1 Documentation

In addition to any requirements for Sycamore to furnish documentation set forth elsewhere under this Exhibit, Sycamore agrees to furnish, at no charge, three full sets of product documentation in CD-ROM form or other form as designated by Sprint, and any succeeding changes thereto, applicable to Deliverables furnished hereunder. Sprint may use, reproduce, and distribute any such product documentation in support of the GIGBE Program and transfer the right to do so to SAIC. Sprint agrees to reproduce Sycamore’s copyright notice contained on any documentation reproduced without change by Sprint and agrees to secure a similar representation from SAIC.

Sycamore shall, with each shipment by Sycamore to Sprint, include all manuals covering the installation, operation and maintenance of the Deliverables shipped. All documentation and any subsequent changes or updates shall reference Sycamore’s serialized numbers, issue numbers and date of issue. Documentation updates shall be made available to Sprint without additional cost via distribution or Sycamore web site.

Sycamore agrees to maintain a mailing list of Sprint’s recipients of such documentation without charge to Sprint.

7.2 Training

Training will be provided in accordance with Attachment (I).

7.3 Sycamore Testing

7.3.1 Engineering Integration Evaluation Testing (EIE)

The EIE Testing phase of the GIG BE Program is described in detail in the GIG BE solicitation document. The results of the EIE Testing phase will determine what, if any, Equipment/Hardware/Software may be ordered by Sprint under this Exhibit. Sycamore shall support EIE Testing as may be reasonably necessary. Engineering support provided by Sycamore for the EIE Testing phase shall be [*].

7.3.2 Factory Testing

In addition to any other tests to be requested by Sprint as set forth under this Exhibit, Sycamore is responsible for the performance of standard factory production tests. Such tests shall be performed in accordance with Sycamore’s normal testing and quality control procedures for Deliverables of the type purchased hereunder in order to insure that the Deliverables provided hereunder meet all applicable specifications. At the request of Sprint, Sycamore shall furnish a copy of its test plans and quality control procedures to Sprint prior to initiating any such testing and Sprint, at its expense, may witness any of the testing by giving prior notice to Sycamore. Sycamore also agrees to maintain detailed records of all such tests and to provide Sprint, if requested, with written results of these tests.

In the event that the Deliverables fail to meet the applicable specifications and test requirements, [*]. If failure rates experienced during these tests or Sprint’s testing becomes unsatisfactory, [*].

Sprint-Sycamore Proprietary Information 13

If Sycamore is unable or unwilling to correct, at Sycamore’s expense, any deficiencies found during testing provided [*] or such longer period as may be mutually agreed upon, Sprint, at its option, shall be relieved of all responsibilities under this Exhibit except for payment for any Deliverables that have been received by Sprint and have satisfactorily passed all applicable testing, certification, and obligations set forth in Section 5.4.

7.4 FCC Registration

If Deliverables furnished under this Exhibit are subject to Part 68 of the Federal Communications Commission’s Rules and Regulations, as amended from time to time, Sycamore warrants that such Deliverables furnished hereunder are registered under and comply with Part 68 of the Federal Communications Commission’s Rules and Regulations, including, but not limited to, all labeling and customer instruction requirements.

7.5 Radio Frequency Standards

Deliverables furnished hereunder shall comply, to the extent applicable, with the requirements of Part 15 of the Federal Communication Commission’s Rules and Regulations, as amended from time to time, including those Sections concerning the labeling of such Deliverables and the suppression of radio frequency and electro-magnetic radiation to specified levels. Should the Deliverables during use generate harmful interference to radio communications, Sycamore shall provide to Sprint information relating to methods of suppressing such interference. In the event such interference cannot reasonably be suppressed, Sycamore shall, at the option of Sprint, accept return of the Deliverables and refund to Sprint the price paid for the Deliverables. The Sycamore SN16000 complies with the requirements of FCC part 15 for Class A equipment. Methods to mitigate noise are provided in the FCC information section of the Sycamore User Install guide. Nothing herein shall be deemed to diminish or otherwise limit Sycamore’s warranty obligations under this Exhibit.

7.6 Marking

All material furnished under this Exhibit shall be marked for identification purposes in accordance with the specifications set forth under this Exhibit and as follows. (Reference ILS paragraph 4.6.2.3 in the SOW, Product Supply Support.)

a) with Sycamore model/serial number; and

b) with month and year of manufacture; and

c) other marking in accordance with industry standards as set forth in the most current issues of Bellcore Documents #TR-STS-000383, and #GR-485-CORE, as amended from time to time, and Common Language Equipment/Hardware Identification Code (CLEI) requirements

d) Sycamore shall ensure serial numbered Equipment/Hardware is accessible without the necessity for removal from packaging or such other method as may be approved by Sprint. Sycamore can either package so that opening of the carton flap or employing a tear-away perforation tactic will expose the serial number or such other method as may be approved by Sprint. Sycamore shall also ensure serial number is labeled on the shipping container for easy accountability during transshipment.

e) In addition, Sycamore agrees to add any other identification which might be requested by Sprint such as but not limited to distinctive marks conforming to Sprint’s serialization plan.

Sprint-Sycamore Proprietary Information 14

Charges, if any, for such additional identification marking shall be as agreed upon by Sycamore and Sprint.

[*].

Sycamore must provide written notification to Sprint no less than [*] in advance of Sycamore’s intended date to [*] of the Deliverables provided hereunder or to [*] If Sycamore’s lower-tier subcontractor terminates production of a component of the Deliverables, Sycamore will [*] provided however, that Sycamore reserves the right to [*] Within [*] of notification of [*] Sprint will provide written notification to Sycamore that it concurs with Sycamore’s decision or that it intends [*] Unless otherwise agreed to, the framework for that agreement is that [*]

[*].

[*] modifications to the Deliverable(s), and procedures for implementing them on a timely basis. Sycamore will [*] notify Sprint by telephone and/or email of [*]. Sycamore will [*], provide Documentation that properly provides for the successful implementation of the Software Upgrade or Equipment Modifications.

[*].

[*].

[*].

[*].

8 Technical Support and Maintenance

8.1 Maintenance and Support Services

Sycamore shall provide Equipment/Hardware and Software maintenance and support services (“Maintenance Services”) reference [*], “Product Operations Support”—Maintenance and Support Services, attached hereto and made a part hereof under the terms and conditions set forth under this Exhibit, (a) [*] during the applicable warranty period, and (b) at the prices for Maintenance Services rendered by Sycamore after the applicable warranty period. The Maintenance Services shall be performed [*], and shall be performed in accordance with the terms of Attachment (I) to this Exhibit.

Sycamore will keep on file with Sprint, a list of specified personnel with current work and home telephone and fax numbers and pager numbers who will be available for immediate contact in emergency or service impairing situations.

[*], Sprint may terminate for convenience Maintenance Services upon written notification from Sprint provided that SAIC has provided a similar notice to Sprint. Continuation of Maintenance Services after the expiration of the applicable no-charge warranty period is an option that may be exercised by [*] In the event [*] Prices shall be set in accordance with pricing Attachment (I).

8.2 License Separation

Sprint’s right to Use the Software shall not be conditioned upon the ordering of Maintenance Services by Sprint. Cancellation or termination of Maintenance Services by Sprint will not terminate or otherwise affect the license granted under this Exhibit.

Sprint-Sycamore Proprietary Information 15

8.3 Repair and Replacement Equipment/Hardware and Services – Emergency Service and Disaster

In addition to the provisions set forth under the [*], Disaster Recovery Support, Sycamore agrees, in the event of an emergency out-of-service condition, such as natural or man-made disaster occurring outside the normal course of business, affecting the Equipment/Hardware and Software furnished under this Exhibit, [*] to ship available [*] and/or provide associated [*] within [*] of [*] during the term of this Exhibit, including any options that may be exercised.

In order to schedule shipment of replacement Equipment/Hardware, Sprint may call the Sycamore Technical Assistance Center at [*] This Service will be available [*] a day and [*] days a week. For Equipment/Hardware under warranty, there will be [*] and transportation costs will be borne by [*] For Equipment/Hardware not under warranty, [*] with Sprint for said Equipment/Hardware or if no such Exhibit exists, at a price agreed to by Sycamore and Sprint. Transportation costs [*].

8.4 Repair and Replacement Parts and Services – [*]

Sycamore agrees to offer for sale to Sprint, [*] of the Equipment/Hardware, whichever is later, Equipment/Hardware, functionally equivalent maintenance, replacement, and repair parts (“Parts”) for the material covered under this Exhibit [*] or, if no such Exhibit exists, [*] If the parties fail to agree on a price, the price shall be [*]. These Parts shall be [*].

In the event Sycamore fails to supply such Parts or Sycamore is unable to obtain another source of supply for Sprint, then such failure or inability shall be [*] All such information, right or licenses shall be provided with [*]. The technical information includes, by example, and not by way of limitation: (a) [*], (b)[*], (c) [*], and (d) [*].

Sycamore agrees to offer for sale to Sprint, during the term of this Exhibit (including any options which may be exercised) or [*] of the Equipment/Hardware, whichever is later. Equipment/Hardware, Maintenance Services, including Software fixes, for the Deliverables covered under this Exhibit at the price set forth in [*] or, if no such Exhibit exists, at a price [*] If the parties [*], the price shall be [*].

8.5 Disposition of Recurring No-Trouble-Found (NTF) Returns

The same Equipment/Hardware shall not be returned by Sycamore to Sprint with the notation no-trouble-found (NTF) [*]. [*] that Equipment/Hardware has been classified by Sycamore as NTF, Sycamore shall ship a different reconditioned replacement rather than the previously shipped reconditioned replacement to Sprint for the NTF Equipment/Hardware [*].

8.6 Failure Mode Analysis of Failed NTF Components

Sycamore shall perform failure mode analysis on components with a persistent history of failure and NTF components to determine the specific cause of the component failure. The results of this analysis and planned corrective action shall be provided to Sprint [*] of the completion of the analysis.

[*].

Sprint-Sycamore Proprietary Information 16

Sycamore agrees to provide Sprint or its third party designees the materials and Services upon the terms and conditions of this Exhibit and upon such further terms and conditions as may be mutually agreed upon [*]. Sycamore agrees to [*] and agrees not to [*].

8.8 Technical Support

Ongoing technical support via telephone and/or the Internet to Sprint will be at no charge during the warranty period and shall include but not be limited to the following: (a) answering technical questions; (b) explaining proper operation procedures for material; (c) providing up-to-date information on the status of material returned to Sycamore for repair; (d) quoting and explaining any repair or replacement charges for material. Sycamore’s telephone technical support may be obtained by calling [*].

Sprint shall be entitled to ongoing technical support, provided, however, that the availability or performance of this technical support service shall not be construed as altering or affecting Sycamore’s obligations as set forth in the various warranty clauses or elsewhere provided for under this Exhibit. Ongoing technical support via telephone will be at no charge during the warranty period and is as follows:

• [*].

• 5x8 Technical Support for all non-”Critical” service requests during Manufacturer’s normal business hours: 8:30 a.m. – 5:30 p.m. EST Monday through Friday, excluding Manufacturer Holidays, via the Technical Assistance Center (TAC). [*].

8.9 Enhancements

Under Maintenance Services, Sycamore shall provide to Sprint, [*].

8.10 Compatibility Identification

Sycamore shall identify the impact, if any, to its Equipment/Hardware components or existing Software when any of its Sycamore products are added or Enhancements made.

8.11 Problem Avoidance

Sycamore shall notify Sprint of Software Upgrades or known Software problems which have solutions applicable to Sprint’s Use of Software. Sycamore will discuss these with Sprint to determine the appropriate course of action. Sycamore shall not install any Software monitoring device, which could disable Software or restrict Sprint’s or Sprint’s customers’ right to Use the Software.

8.12 Backwards Compatibility Warranty

Sycamore warrants that any Equipment/Hardware and/or Software will be compatible with any Software Feature Enhancements or Equipment Feature Enhancements so that no changes are required to obtain the full functionality and compliance with the Specifications that existed:

(i) [*].

(ii) [*].

Sprint-Sycamore Proprietary Information 17

before the installation of the Software Feature Enhancements or the Equipment Feature Enhancements.

Sycamore also warrants that any Software Feature Enhancements or Equipment Feature Enhancements will be [*].

9 Software

9.1 Design Tools, Element Management & Operating System Software

Sycamore grants a nonexclusive, nontransferable license to use the object code form of the Software products solely for Sprint’s internal business purposes (including, without limitation, in conjunction with Sprint’s provision of services to its end-user customers) on or in conjunction with the hardware product with which it was originally delivered, such license to be subject to Sprint’s timely payment in full of the purchase price for such Software and related hardware products. Sprint is only authorized to reproduce a reasonable number of copies of the Software products solely for backup purposes. Sprint is hereby prohibited from otherwise copying or translating, modifying or adapting the Software products or incorporating in whole or any part in any other product or creating derivative works based on all or any part of the products.

9.2 License Grant

To enable Sprint to market and distribute the Software, Sycamore grants to Sprint during the Term of this Exhibit the right to sublicense the Software in object code form to SAIC and its end-user customers under the Prime Contract, as sublicensees, for their internal use only by means of a written nonexclusive, transferable license to use the object code form of the Software products solely for Sprint’s internal business purposes or for the internal business purposes of SAIC and its end user customers under the Prime Contract (including, without limitation, in conjunction with Sprint’s or SAIC’s provision of services to its end-user customers under the Prime Contract) on or in conjunction with the Equipment/Hardware with which it was originally delivered, such sublicense to be subject to Sprint’s timely payment in full of the purchase price for such Software and related Equipment/Hardware products and provided that all the restrictions on use included in this Section are included in the license granted to SAIC by Sprint. Sprint is only authorized to reproduce a reasonable number of copies of the Software products solely for backup purposes. Sprint is hereby prohibited from otherwise copying or translating, modifying or adapting the Software products or incorporating in whole or any part in any other product or creating derivative works based on all or any part of the products. Sprint is not authorized to license others to reproduce any copies of the Software products, except as expressly provided in this Exhibit. Sprint agrees to ensure that all copyright, trademark and other proprietary notices of manufacture affixed to or displayed on the Software products will not be removed or modified. Sprint shall not decompile, disassemble or reverse engineer the licensed s/w or any component thereof, except as may be permitted by applicable law, in which case Sprint must notify Sycamore in writing and manufacturer may provide review and assistance.

9.2.1 License Fee

Fees for the license of the Software and the maintenance of the Software are designated in pricing Attachment (I).

Sprint-Sycamore Proprietary Information 18

9.3 Software and Programming Aids

On the delivery date, Sycamore shall furnish to Sprint, at no additional charge or fee, at least the following basic items:

a) Object program (the fully compiled or assembled series of instructions, written in machine language, ready to be loaded into the computer that guides the operation of the computer) stored in a Medium compatible with the Equipment/Hardware described in the Order;

b) Program implementation and user instructions and required procedures;

c) The Software Specifications, if any, as well as the required machine configuration;

d) Any related material Sycamore may have which is necessary or useful for the full implementation and Use of the Software and which Sycamore normally furnishes to users of the Software without additional charge or fee.

e) Five (5) copies of the Software CD’s provided at no additional charge to Sprint solely for testbed purposes. “Testbed purposes” shall mean EIE. Sprint agrees that this copy shall not be used for production purposes.

9.4 Source Programs and Technical Documentation

Sycamore shall, at Sprint’s request, enter into an Escrow Agreement to safeguard Sycamore’s Software Specifications and source program at any time during the duration of this Exhibit. Both parties shall negotiate in good faith such Escrow Agreement under this Exhibit. In the absence of such Escrow Agreement, there will be no transfer of source code.

10 Labor Relations

Sycamore shall be responsible for Sycamore’s own labor relations with any labor organization either representing or seeking to represent Sycamore’s employees and shall negotiate and seek to adjust all disputes between Sycamore and Sycamore’s employees or any union representing Sycamore’s employees. Except as otherwise provided in this clause, and subject to the terms under this Exhibit, Sycamore may freely enter into any subcontract with any union representing employees employed by Sycamore to perform the duties contemplated by the requirements under this Exhibit. Sycamore shall enter into no subcontract that purports to obligate Sprint to any such union, either as successor or assignee of Sycamore, or in any other way, on the termination of this Exhibit, or at any other time. Sycamore warrants that Sycamore is not a party to any existing union subcontract purporting so to obligate Sprint.

11 Technical and Sycamore Representatives

The following authorized representatives are hereby designated for this Exhibit:

SYCAMORE:		SPRINT:
TECHNICAL:	Mr. Byran Mitchell	TECHNICAL:	Ms. Artt Smith
SUBCONTRACTUAL:	Mr. Michael Reardon	SUBCONTRACTUAL:	Mr. Harold Johnson

Sprint-Sycamore Proprietary Information 19

11.1 Changes

Sprint may, by written notice to Sycamore at any time before completion of this Exhibit, make changes within the general scope of this Exhibit in any one of the following: (a) drawings, designs, or specifications; (b) quantity; (c) place of delivery; (d) method of shipment or routing; and (e) make changes in the amount of Sprint-furnished property. If any such change causes a material increase or decrease in the prices included in the Exhibit or a specific Order or the time required for the performance of any part of the Work under this Exhibit, Sprint shall [*], and shall [*] from Sprint or from the [*]. Failure to agree to any adjustment shall be a dispute under the Disputes clause referenced in this Exhibit. Sycamore will proceed with the work as changed without interruption and without awaiting settlement of any such claim if Sprint is directed by SAIC and the Government in writing and so directs Sycamore.

12.0 Disclosure

Except as required by law or regulation, Sycamore shall not disclose information concerning the work or subject matter of this Exhibit to any third party, unless such disclosure is necessary for the performance of the Exhibit effort. No news releases, public announcement, denial or confirmation of any part of the subject matter of this Exhibit or any phase of any program hereunder shall be made without prior written consent of Sprint. The restrictions of this paragraph shall continue in effect upon completion or the parties may mutually agree upon termination of this Exhibit for such period of time as in writing. In the absence of a written established period, no disclosure is authorized. Failure to comply with the provisions of this Clause may be cause for termination of this Exhibit.

13.0 Insurance

Without prejudice to Sycamore’s liability to indemnify Sprint as stated in the INDEMNIFICATION provision of this Exhibit, Sycamore shall procure, at its expense, and maintain for the duration of the Exhibit, the insurance policies described below with financially responsible insurance companies, reasonably acceptable to Sprint, with policy limits not less than those indicated below. Notwithstanding any provision contained herein, Sycamore, and its employees, agents, representatives, consultants and lower-tier Sycamore and Sycamores, are not insured by SAIC, and are not covered under any policy of insurance that Sprint has obtained or has in place.

Special Provisions Applicable to Sycamore’s Insurance coverage:

Additional Insured - Sycamore shall have all policies, except workers’ Compensation and Employer’s Liability, endorsed to name Sprint as an Additional Insured with respect to the Work to be performed by Sycamore.

Waiver of Subrogation - Sycamore shall have all policies endorsed to waive the insurer’s rights of subrogation in favor of Sprint.

Adequacy of Insurance Limits - The insurance coverage limits stated below are minimum coverage requirements, not limits of liability, and shall not be construed in any way as Sprint’s acceptance of responsibility of Sycamore.

Certificates of Insurance - Prior to commencement of any Work under this Exhibit, Sycamore shall furnish Sprint with Certificates of Insurance, in ISO ACCORD form, evidencing the insurance coverage required in this Exhibit and containing the following information:

• Identify Sprint as an “Additional Insured” with respect to all policies except Workers’ Compensation and employers’ liability.

Sprint-Sycamore Proprietary Information 20

• State that all policies have been endorsed to waive subrogation in favor of Sprint.

• State that [*]

Work Within 50’ of a Railroad - Exclusion deleted. (If applicable due to performance of Work within 50 feet of a railway)

14.0 Releases Void.

Neither party shall require (i) waivers or releases of any personal rights or (ii) execution of documents which conflict with the terms under this Exhibit, from employees, representatives or customers of the other in connection with visits to its premises and both parties agree that no such releases, waivers or documents shall be pleaded by them or third persons in any action or proceeding.

14.1 Coverage

Workers’ Compensation - Insurance for statutory obligations imposed by law including, where applicable, [*].

Employers Liability - Insurance with limits of [*] for bodily injury by accident and [*] for bodily injury by disease, including, if applicable, maritime coverage endorsement.

Commercial General Liability - (Standard ISO occurrence form)—including products and completed operations coverage, full fire legal liability and Sycamore liability, with a per occurrence limit of [*].

Business Auto Liability - Coverage for bodily injury and property damage liability for all owned, hired or non-owned vehicles, with an each accident limit of [*].

15.0 Indemnification

(a) Each Party (the “indemnifying party”) shall indemnify and save harmless the other party (the “indemnified party”) and their officers, directors, and employees, from and against any and [*] incurred by the indemnified party in the defense of any such Claim or the enforcement of this Section.

(b) The indemnified party shall promptly notify the indemnifying party of any Claim which is covered by this indemnification provision and shall, at its option, authorize representatives of the indemnifying party, at the indemnifying party’s sole cost and expense, to settle or defend any such Claim and to represent the indemnified party in, or to take charge of, any litigation or other form of dispute resolution in connection therewith.

16.0 Infringement Indemnity

Subject to the limitations below, and as Sprint’s sole and exclusive remedy, Sycamore agrees to (a) assume the defense of Sprint against all claims brought by a 3^rd party and all judicial or governmental actions that the products as delivered by Sprint infringe or misappropriate any U.S. patent rights, copyrights, trade secrets or trademarks of such 3^rd party, and (b) to indemnify and

Sprint-Sycamore Proprietary Information 21

hold Sprint harmless from and against all final awards of damages in favor a 3^rd party based upon claims and judicial or governmental determinations that the products as delivered by Sycamore infringe or misappropriate any U.S. patent rights, copyrights, trade secrets, or trademarks of such 3^rd party. Sycamore’s obligation hereunder is predicated upon Sprint’s prompt notification to Sycamore of any actual or threatened claim, Sprint’s reasonable cooperation in the defense thereof and the granting to Sycamore of the sole control over the defense or settlement of the claim. In the event the use or sale of all or any portion of the products is enjoined, or in Sycamore’s judgment may be enjoined, as a result of a suit based on alleged infringement or misappropriation of the 3^rd party intellectual property rights, Sprint agrees to either: (a) procure for Sprint the right to continue to use the product, or (b) replace or modify the infringing or misappropriating product so that it becomes non-infringing. In the event that the foregoing alternatives cannot be reasonably accomplished by Sycamore, Sycamore shall direct Sprint to [*] The foregoing shall not apply: (a) to any designs, specifications, or modifications originating with or requested by Sprint, or (b) to the combination of any product with other equipment, software or products not supplied by Sycamore if such infringement or misappropriation would not have occurred but for such combination, or (c) Sprint’s failure to install and update provided at no additional charge, where the update would have avoided the infringement claim.

17.1 Limitation of Liability

A. General. Except for liability arising out of (1) [*] or (2) [*] the liability of each Party to the other for all damages arising out of or related to this Exhibit, regardless of the form of action that imposes liability, whether in contract, equity, negligence, intended conduct, tort or otherwise, will be limited to and will not exceed, in the aggregate for all claims, actions and causes of action of every kind and nature, [*] period (the “Aggregate Damages Limit”).

B. Limitation on Other Damages. Except for liability arising out of (1) [*] or (2) [*] in no event will the measure of damages payable by either Party include, nor will either Party be liable for, any amounts for loss of income, profit or savings or indirect, incidental, consequential, exemplary, punitive or special damages of any party, including third parties, even if such Party ahs been advised of the possibility of such damages in advance, and all such damages are expressly disclaimed.

17.0 Proprietary Information

Protection of Proprietary Information of either Party shall be in accordance with the provisions of the Reseller Agreement. [*] shall be required to enter into a separate Non- Disclosure Agreement included herein as Attachment IX.

18.0 Disputes

Any dispute not disposed of in accordance with the “Disputes Clause” of Attachment III, if any, shall be resolved in accordance with the terms of the Exhibit.

Pending any decision, appeal or judgment referred to in this provision or the settlement of any dispute arising under this Exhibit, Sycamore shall proceed diligently with the performance under this Exhibit.

19.0 Default

Sprint may, by written notice of default to Sycamore, terminate the whole or any part of this Exhibit in any one of the following circumstances: (i) if Sycamore fails to make progress in the

Sprint-Sycamore Proprietary Information 22

Work so as to endanger performance or (ii) if Sycamore fails to perform any of the other provisions under this Exhibit in accordance with its terms, and in either of these two circumstances does not cure such failure within a period of [*] (or such longer period as Sprint may authorize in writing) after receipt of notice from Sprint specifying such failure; or (iii) Sycamore becomes insolvent or the subject of proceedings under any law relating to bankruptcy or the relief of debtors or admits in writing its inability to pay its debts as they become due.

If this Exhibit is so terminated, Sycamore shall submit a final termination settlement proposal to Sprint. Sycamore shall submit the proposal promptly but no later than [*] from the effective date of the termination. If Sycamore fails to submit the proposal within the time allowed, Sprint may determine the amount, if any, due Sycamore because of the termination. The amount will be determined as follows: (i) An amount for direct labor hours determined by multiplying the number of direct labor hours expended before the effective date of termination by the hourly rates, less profit, in the Schedule, less any hourly rate payments already made to the Sycamore; (ii) An amount for material expenses incurred before the effective date of termination, not previously paid to Sycamore.

Sycamore shall transfer title and deliver to Sprint, in the manner and to the extent requested in writing by Sprint at or after termination such complete articles, partially completed articles and materials, parts, tools, dies, patterns, jigs, fixtures, plans, drawings, information and subcontract rights as Sycamore has produced or acquired for the performance of the terminated part under this Exhibit, and Sprint will pay Sycamore the Exhibit price for complete articles delivered to and accepted by Sprint and the fair value of the other property of Sycamore so requested and delivered.

Sycamore shall continue performance under this Exhibit to the extent not terminated. Sprint shall have no obligations to Sycamore with respect to the terminated part of this Exhibit except as herein provided. In case of Sycamore’s default, Sprint’s rights as set forth herein shall be in addition to Sprint’s other rights although not set forth under this Exhibit.

Sycamore shall not be liable for damages resulting from default due to causes beyond the Sycamore’s control and without Sycamore’s fault or negligence, provided, however, that if Sycamore’s default is caused by the default of a lower-tier Sycamore, such default must arise out of causes beyond the control of both Sycamore and lower-tier Sycamore without the fault or negligence of either of them and, provided further, the supplies or services to be furnished by the Sycamore or lower-tier Sycamore were not obtainable from other sources.

20.0 Exhibit Closeout

Within sixty (60) calendar days after the end of the period of performance for all of the Equipment/Hardware and Services to be procured herein, as described in the Attachment I, Statement of Work, Sprint will issue to Sycamore an Exhibit Closeout Package. The Package will include, as applicable, Sycamore Release of Claims; Sycamore’s Assignment of Refunds, Rebates, Credits, and Other Amounts; Exhibit Patents Report; and any other documentation or request for information considered necessary by Sprint to closeout this Exhibit.

Sycamore agrees to submit all information and documentation, including a FINAL invoice bearing the statement, “This FINAL invoice was prepared using rates stipulated in the Exhibit” as required by the Exhibit Closeout Package within twenty (20) calendar days of the date of the Package or such longer period as specified by Sprint. The parties further agree if the information and documentation submitted by Sycamore is found acceptable by Sprint, with or without

Sprint-Sycamore Proprietary Information 23

negotiations (the necessity for which shall be solely determined by Sprint), to be bound by Sycamore’s closeout submission as the final Exhibit between the parties with respect thereto.

In the event Sycamore fails to submit the required closeout information and documentation in a timely manner, such failure shall constitute Sycamore’s express agreement that the amounts paid to date by Sprint pursuant under this Exhibit, as determined by Sprint’s records, constitute the full, complete and final extent of Sprint’s financial obligation to Sycamore, that Sycamore does forever fully and finally remise, release, and discharge Sprint, its officers, agents and employees, of and from any and all liabilities, obligations, claims, and demands whatsoever arising under or relating to this Exhibit, and that Sycamore expressly authorizes Sprint to rely on the foregoing representations and release in connection with Sprint’s closeout of or other actions taken with respect to Sprints subcontract with SAIC.

21.0 Non-Waiver of Rights

The failure of either party to insist upon strict performance of any of the terms and conditions under the Exhibit, or to exercise any rights or remedies, shall not be construed as a waiver of its rights to assert any of the same or to rely on any such terms or conditions at any time thereafter. The invalidity in whole or in part of any term or condition under this Exhibit shall not affect the validity of other parts hereof.

22.0 Order of Precedence

The documents listed below are hereby incorporated by reference. In the event of an inconsistency or conflict between or among the provisions of this Exhibit, the inconsistency shall be resolved by giving precedence in the following order:

(1) [*]

(2) Attachment I [*]

(3) Attachment II [*]

(4) Attachment III [*]

(5) Attachment IV [*]

(6) Attachment V [*]

(7) Attachment VI [*]

(8) [*]

(9) [*]

(10) Attachment VII [*]

(11) Attachment VIII [*]

(12) Attachment IX [*]

Sprint-Sycamore Proprietary Information 24

23.0 Export Control Compliance for Foreign Persons

The subject technology under this Exhibit (together including data, services, and Equipment/Hardware provided hereunder) may be controlled for export purposes under the International Traffic in Arms Regulations (ITSR) controlled by the U.S. Department of State or the Export Administration Regulations (EAR) controlled by the U.S. Department of Commerce. ITAR controlled technology may not be exported without prior written authorization and certain EAR technology requires a prior license depending upon its categorization, destination, end-user and end-use. Exports of any U.S. technology to Iran, Iraq, Libya, North Korea, Sudan, Cuba, and other destinations under U.S. sanction or embargo are forbidden.

Access to certain technology (“Controlled Technology”) by Foreign Persons (working legally in the U.S.), as defined below, may require an export license if the Controlled Technology would require a license prior to delivery to the Foreign Person’s country of origin. Sycamore is bound by U.S. export statutes and regulations and shall comply with all U.S, export laws. Sycamore shall have full responsibility for obtaining any export licenses or authorization required to fulfill its obligations under this Exhibit.

Sycamore hereby certifies that all Sycamore employees who have access to the Controlled Technology are U.S. citizens, have a valid green card or, have been granted political asylum or refugee status in accordance with 8 U.S.C. 1324b(a)(3). Any non-citizens who do not meet one of these criteria are “Foreign Persons” within the meaning of this clause and have been authorized under export licenses to perform their Work hereunder.

IN WITNESS WHEREOF, the parties have caused this Exhibit to be executed in duplicate and incorporated into the Reseller Agreement by their duly authorized representatives as of the effective date written below.

SYCAMORE NETWORKS, INC.		SPRINT COMMUNICATIONS COMPANY, L.P.
By:		By:
Name:		Name:	Harold T. Johnson
Title:		Title:	Group Manager, Strategic Sourcing
Effective Date:	February 25, 2004	Date:

Sprint-Sycamore Proprietary Information 25

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Daniel E. Smith, certify that:

1) I have reviewed this quarterly report on Form 10-Q of Sycamore Networks, Inc.;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 13, 2004

/s/    DANIEL E. SMITH        

Daniel E. Smith

President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Frances M. Jewels, certify that:

1) I have reviewed this quarterly report on Form 10-Q of Sycamore Networks, Inc.;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 13, 2004

/s/    FRANCES M. JEWELS        

Frances M. Jewels

Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Sycamore Networks, Inc. (the “Company”) on Form 10-Q for the period ending April 24, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel E. Smith, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company, as of, and for the periods presented in the Report.

/s/    DANIEL E. SMITH        

Daniel E. Smith

President and Chief Executive Officer

May 13, 2004

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Sycamore Networks, Inc. (the “Company”) on Form 10-Q for the period ending April 24, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Frances M. Jewels, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company, as of, and for the periods presented in the Report.

/s/    FRANCES M. JEWELS        

Frances M. Jewels

Chief Financial Officer, Vice President,

Finance and Administration, Secretary and Treasurer

May 13, 2004