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 JANUARY 29, 2005

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 February 14, 2005 was 275,326,704.

Sycamore Networks, Inc.

Index		Page No.
Part I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (unaudited)	3
	Consolidated Balance Sheets as of January 29, 2005 and July 31, 2004	3
	Consolidated Statements of Operations for the three months and six months ended January 29, 2005 and January 24, 2004	4
	Consolidated Statements of Cash Flows for the six months ended January 29, 2005 and January 24, 2004	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	33
Item 4.	Controls and Procedures	33
Part II.	OTHER INFORMATION	34
Item 1.	Legal Proceedings	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 4.	Submission of Matters to a Vote of Security Holders	36
Item 6.	Exhibits	37
Signature		38

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Part I. Financial Information

Item 1. Financial Statements

Sycamore Networks, Inc.

Consolidated Balance Sheets

(in thousands, except par value)

(unaudited)

	January 29, 2005			July 31, 2004
Assets
Current assets:
Cash and cash equivalents	$	373,172		$	45,430
Short-term investments		396,187			482,274
Accounts receivable, net of allowance for doubtful accounts of $4,132 at January 29, 2005 and July 31, 2004		10,074			10,605
Inventories		4,148			4,294
Prepaids and other current assets		4,686			3,611
Total current assets		788,267			546,214
Property and equipment, net		8,412			9,419
Long-term investments		179,613			433,621
Other assets		1,585			1,664
Total assets	$	977,877		$	990,918
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	5,140		$	5,602
Accrued compensation		2,254			2,071
Accrued warranty		2,086			2,017
Accrued expenses		3,600			3,077
Accrued restructuring costs		10,276			12,005
Deferred revenue		3,721			7,226
Other current liabilities		2,637			2,554
Total current liabilities		29,714			34,552
Deferred revenue		1,427			926
Total liabilities		31,141			35,478
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; 275,312 and 273,887 shares issued at January 29, 2005 and July 31, 2004, respectively		275			274
Additional paid-in capital		1,744,327			1,740,293
Accumulated deficit		(794,207	)		(781,104	)
Deferred compensation		(456	)		(1,279	)
Accumulated other comprehensive loss		(3,203	)		(2,744	)
Total stockholders’ equity		946,736			955,440
Total liabilities and stockholders’ equity	$	977,877		$	990,918

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						Six Months Ended
	January 29, 2005			January 24, 2004			January 29, 2005			January 24, 2004
Revenue:
Product	$	11,225		$	3,673		$	22,164		$	9,829
Service		3,667			3,202			6,943			5,487
Total revenue		14,892			6,875			29,107			15,316
Cost of revenue:
Product		6,565			2,152			13,188			5,760
Service		1,837			2,094			3,754			4,210
Stock-based compensation:
Product		30			77			87			157
Service		17			100			53			200
Total cost of revenue		8,449			4,423			17,082			10,327
Gross profit		6,443			2,452			12,025			4,989
Operating expenses:
Research and development		11,217			11,751			22,889			23,049
Sales and marketing		3,011			4,345			6,155			8,756
General and administrative		1,932			1,482			4,180			3,450
Stock-based compensation:
Research and development		212			1,106			482			1,790
Sales and marketing		23			263			61			537
General and administrative		31			399			231			746
Total operating expenses		16,426			19,346			33,998			38,328
Loss from operations		(9,983	)		(16,894	)		(21,973	)		(33,339	)
Interest and other income, net		4,672			3,895			8,870			8,163
Loss before income taxes		(5,311	)		(12,999	)		(13,103	)		(25,176	)
Provision for income taxes		—			—			—			—
Net loss	$	(5,311	)	$	(12,999	)	$	(13,103	)	$	(25,176	)
Basic and diluted net loss per share	$	(0.02	)	$	(0.05	)	$	(0.05	)	$	(0.09	)
Weighted-average shares used in computing basic and diluted net loss per share		274,963			271,801			274,497			271,138

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

4

Sycamore Networks, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Six Months Ended
	January 29, 2005			January 24, 2004
Cash flows from operating activities:
Net loss	$	(13,103	)	$	(25,176	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,522			5,982
Stock-based compensation		914			3,430
Provision for doubtful accounts		—			(52	)
Changes in operating assets and liabilities:
Accounts receivable		531			6,827
Inventories		146			(5,593	)
Prepaids and other current assets		(1,075	)		(709	)
Deferred revenue		(3,004	)		(310	)
Accounts payable		(462	)		871
Accrued expenses and other current liabilities		858			(1,127	)
Accrued restructuring costs		(1,729	)		(3,465	)
Net cash used in operating activities		(14,402	)		(19,322	)
Cash flows from investing activities:
Purchases of property and equipment		(1,515	)		(2,702	)
Purchases of investments		(102,779	)		(395,211	)
Maturities of investments		442,415			461,817
Decrease in other assets		79			354
Net cash provided by investing activities		338,200			64,258
Cash flows from financing activities:
Proceeds from issuance of common stock		3,944			4,112
Purchase of treasury stock		—			(23	)
Net cash provided by financing activities		3,944			4,089
Net increase in cash and cash equivalents		327,742			49,025
Cash and cash equivalents, beginning of period		45,430			182,640
Cash and cash equivalents, end of period	$	373,172		$	231,665

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 a network infrastructure that can provision, manage and deliver economic, high-bandwidth services to their customers.

2. Basis of Presentation

The accompanying financial data as of January 29, 2005 and for the three and six months ended January 29, 2005 and January 24, 2004 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, 2004 filed with the SEC.

Certain previously reported amounts have been reclassified to conform to the current period presentation. In connection with the preparation of this report, the Company concluded that it was appropriate to classify certain auction rate securities as long-term investments. Previously, such investments had been classified as cash and cash equivalents. At January 29, 2005, the Company reclassified certain auction rate securities from cash and cash equivalents to long-term investments as of January 29, 2005 and for all prior periods. The Company also made corresponding adjustments to its Consolidated Statements of Cash Flows. As of January 29, 2005 and July 31, 2004, the Company held approximately $14.8 million and $107.3 million, respectively, of these auction rate securities, which were reclassified. These reclassifications had no impact on the results of operations of the Company.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of financial position as of January 29, 2005 and results of operations and cash flows for the periods ended January 29, 2005 and January 24, 2004 have been made. The results of operations and cash flows for the periods ended January 29, 2005 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						Six Months Ended
	January 29, 2005			January 24, 2004			January 29, 2005			January 24, 2004
Net loss:
As reported	$	(5,311	)	$	(12,999	)	$	(13,103	)	$	(25,176	)
Stock-based compensation expense included in reported net loss under APB 25		313			1,945			914			3,430
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		(5,265	)		(9,875	)		(12,549	)		(19,097	)
Pro forma	$	(10,263	)	$	(20,929	)	$	(24,738	)	$	(40,843	)
Basic and diluted net loss per share:
As reported	$	(0.02	)	$	(0.05	)	$	(0.05	)	$	(0.09	)
Pro forma	$	(0.04	)	$	(0.08	)	$	(0.09	)	$	(0.15	)

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						Six Months Ended
	January 29, 2005			January 24, 2004			January 29, 2005			January 24, 2004
Numerator:
Net loss	$	(5,311	)	$	(12,999	)	$	(13,103	)	$	(25,176	)
Denominator:
Weighted-average shares of common stock outstanding		275,037			272,666			274,593			272,346
Weighted-average shares subject to repurchase		(74	)		(865	)		(96	)		(1,208	)
Shares used in per-share calculation – basic and diluted		274,963			271,801			274,497			271,138
Net loss per share:
Basic and diluted	$	(0.02	)	$	(0.05	)	$	(0.05	)	$	(0.09	)

7

Options to purchase 29.4 million and 28.8 million shares of common stock, at respective average exercise prices of $6.86 and $7.43, have not been included in the computation of diluted net loss per share for the three and six months ended January 29, 2005 and January 24, 2004, respectively, as their effect would have been anti-dilutive.

5. Inventories

Inventories consisted of the following (in thousands):

	January 29, 2005		July 31, 2004
Raw materials	$	1,022	$	702
Work in process		1,288		1,405
Finished goods		1,838		2,187
Total	$	4,148	$	4,294

6. Comprehensive Loss

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

	Three Months Ended						Six Months Ended
	January 29, 2005			January 24, 2004			January 29, 2005			January 24, 2004
Net loss	$	(5,311	)	$	(12,999	)	$	(13,103	)	$	(25,176	)
Unrealized gain (loss) on investments		(1,269	)		849			(459	)		(56	)
Comprehensive loss	$	(6,580	)	$	(12,150	)	$	(13,562	)	$	(25,232	)

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 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. During the fourth quarter of fiscal 2004, the Company recorded a net charge of $0.3 million to operating expenses resulting from changes in estimates relating to its restructuring programs. During the second quarter of fiscal 2005, due to changes in estimates relating to its restructuring programs, the Company recorded a net charge of $0.4 million to operating expenses. In the event that other contingencies associated with the restructuring program 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.

8

As of January 29, 2005, the Company had $10.3 million in accrued restructuring costs, consisting primarily of $9.8 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.

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. 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 $3.8 million credit to operating expenses relating to various changes in estimates. The changes in estimates consisted of a $8.4 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 $5.6 million of additional facility consolidation charges. During the third and fourth quarters of fiscal 2003, the Company recorded a net $0.1 million credit to operating expenses due to various changes in estimates. The changes in estimates consisted of a $4.5 million reduction in potential legal matters associated with the restructuring programs, partially offset by $4.4 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. During the fourth quarter of fiscal 2004, the Company recorded a net $0.3 million charge to operating expenses for additional facility consolidation charges. During the second quarter of fiscal 2005, due to less favorable sublease assumptions, the Company recorded a net $0.9 million charge to operating expenses.

As of January 29, 2005, the projected future cash payments of $9.9 million consist primarily 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.

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The restructuring charges and related asset impairments recorded in the fiscal 2001 and the first quarter fiscal 2002 restructuring programs, 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, 2004		Payments		Adjustments			Accrual Balance at January 29, 2005
Workforce reduction	$	11,280	$	1,002	$	9,309	$	969	$	—	$	—	$	—		$	—
Facility consolidations and certain other costs		41,618		9,786		18,676		2,682		10,474		1,500		(944	)		9,918
Inventory and asset write-downs		292,736		187,512		94,420		10,804		—		—		—			—
Losses on investments		22,737		22,737		—		—		—		—		—			—
Total	$	368,371	$	221,037	$	122,405	$	14,455	$	10,474	$	1,500	$	(944	)	$	9,918

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. During the second quarter of fiscal 2005, due to an early lease termination, the Company recorded a net credit of $0.6 million to operating expenses.

As of January 29, 2005, the projected future cash payments of $0.4 million consist 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.

10

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, 2004		Payments		Adjustments		Accrual Balance at January 29, 2005
Workforce reduction	$	8,713	$	814	$	7,129	$	770	$	—	$	—	$	—	$	—
Facility consolidations and certain other costs		20,132		—		14,961		3,640		1,531		582		591		358
Asset write-downs		22,637		22,637		—		—		—		—		—		—
Losses on investments		2,108		2,108		—		—		—		—		—		—
Total	$	53,590	$	25,559	$	22,090	$	4,410	$	1,531	$	582	$	591	$	358

8. Recent Accounting Pronouncements

In November 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 151 (“SFAS 151”), Inventory Costs, which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. SFAS 151 will be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We do not believe the adoption of SFAS 151 will have a material impact on our financial statements.

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment (“SFAS 123R”). SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense in the consolidated financial statements based on their fair values. This standard is effective for public companies at the beginning of the first interim or annual period beginning after June 15, 2005 and companies may elect to use either the modified-prospective or modified-retrospective transition method. Under the modified prospective method, awards that are granted, modified, or settled after the date of adoption should be measured and accounted for in accordance with SFAS 123R. Unvested equity-classified awards that were granted prior to the effective date should continue to be accounted for in accordance with SFAS 123 except that amounts must be recognized in the income statement. Under the modified retrospective approach, the previously reported amounts are restated (either to the beginning of the year of adoption or for all periods presented) to reflect the SFAS 123 amounts in the income statement. We are currently evaluating the impact of this standard and its transition alternatives, which may materially impact the Company’s results of operations in the first quarter of fiscal 2006 and thereafter.

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 claims against the Company, several of the Individual Defendants and the underwriters for violations under Sections 11 and 15 of the Securities Act of 1933, as amended (the “Securities Act”), primarily based on the assertion that the Company’s lead

11

underwriters, the Company and several of the Individual Defendants made material false and misleading statements in the Company’s Registration Statements and Prospectuses filed with the Securities and Exchange Commission, or 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. 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 of 1934, as amended (the “Exchange Act”), primarily based on the assertion that the Company’s lead underwriters, the Company and the Individual Defendants defrauded investors by participating in a fraudulent scheme and by making materially false and misleading statements and omissions of material fact during the period in question. 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. 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 sixteen 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 broader discovery obligations and expenses in the litigation than non-test case issuer defendants.

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. This dismissal disposed of the Section 15 and Section 20(a) claims without prejudice, because these claims were asserted only against the Individual Defendants. On October 13, 2004, the court denied the certification of a class in the action against the Company with respect to the Section 11 claims alleging that the defendants made material false and misleading statements in the Company’s Registration Statement and Prospectuses. The certification was denied because no class representative purchased shares between the date of the IPO and January 19, 2000 (the date unregistered shares entered the market), and thereafter suffered a loss on the sale of those shares. The court certified a class in the action against the Company with respect to the Section 10(b) claims alleging that the Company and the Individual Defendants defrauded investors by participating in a fraudulent scheme and by making materially false and misleading statements and omissions of material fact during the period in question.

The Company, the Individual Defendants, the plaintiff class and the vast majority of the other approximately three hundred issuer defendants and the individual defendants currently or formerly associated with those companies have approved, and submitted to the Court for its approval, settlement and related agreements (the “Settlement Agreement”) which set forth the terms of a settlement between these parties. Among other provisions, the Settlement Agreement provides for a release of the Company and the Individual Defendants for the conduct alleged in the action to be wrongful and for the Company to undertake certain responsibilities, including agreeing to assign away, not assert, or release, certain potential claims the Company may have against its underwriters. In addition, no payments will be required by the issuer defendants under the Settlement Agreement to the extent plaintiffs recover at least $1 billion from the underwriter defendants, who are not parties to the Settlement Agreement and have filed a memorandum of law in opposition to the approval of the Settlement Agreement. To the extent that plaintiffs recover less than $1 billion from the underwriter defendants, the approximately three-hundred issuer defendants are required to make up the difference. It is anticipated that any potential financial obligation of the Company to plaintiffs pursuant to the terms of the Settlement Agreement will be covered by existing insurance. The Company currently is not aware of any material limitations on the expected recovery of any potential financial obligation to the plaintiffs from the Company’s insurance carriers. The Company’s insurance carriers are solvent, and the Company is not aware of any uncertainties as to the legal sufficiency of an insurance claim with respect to any recovery by the plaintiffs. Therefore, we do not expect that the Settlement Agreement will involve any payment by the Company. If material limitations on the expected recovery of any potential financial obligation to the plaintiffs from the Company’s insurance carriers should arise, the Company’s maximum financial obligation to plaintiffs pursuant to the Settlement Agreement would be less than $3.4 million. On February 15, 2005, the court granted preliminary approval of the Settlement Agreement, subject to certain modifications consistent with its opinion. The issuer defendants and the plaintiffs have until February 28, 2005 to submit a revised Settlement Agreement which provides for a mutual bar of all contribution claims by the settling and non-settling parties and does not bar the parties from pursuing other claims. The underwriter defendants will have until March 10, 2005 to object to a revised Settlement

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Agreement. There is no assurance that the parties to the settlement will be able to agree to a revised Settlement Agreement consistent with the court’s opinion, or that the court will grant final approval to the settlement to the extent the parties reach agreement. If the Settlement Agreement is not approved and the Company is found liable, we are unable to estimate or predict the potential damages that might be awarded, whether such damages would be greater than the Company’s insurance coverage, and whether such damages would have a material impact on our results of operations or financial condition in any future period.

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.

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, financial position or cash flows.

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 January 29, 2005, 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 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.

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The following table summarizes the activity related to product warranty liability (in thousands):

	Three Months Ended						Six Months Ended
	January 29, 2005			January 24, 2004			January 29, 2005			January 24, 2004
Beginning balance	$	1,978		$	4,157		$	2,017		$	4,651
Accruals for warranties during the period		224			74			443			197
Settlements		(278	)		(147	)		(523	)		(499	)
Adjustments related to preexisting warranties		162			(188	)		149			(453	)
Ending balance	$	2,086		$	3,896		$	2,086		$	3,896

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

Our business has been adversely affected by the decline in the telecommunications industry which began in 2001. During this period, our revenue decreased significantly and we enacted three separate restructuring programs in order to reduce our cost structure and focus our business on the optical switching market. As part of our strategy, however, we continue to maintain a significant cost structure, particularly within the research and development, sales and customer service 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 cumulative net loss of $794.2 million at January 29, 2005.

We reported revenues of $14.9 million and $29.1 million for the three and six months ended January 29, 2005. While our operating results for the first and second quarters of fiscal 2005 improved over the first and second quarters of fiscal 2004, we expect that current market conditions will continue to have an adverse impact on our business. We anticipate that we will continue to generate operating losses and consume cash for at least the next several quarters, if not longer.

In particular, as service providers limit their capital spending, competition for optical switching opportunities is intense and continues to be dominated by large, incumbent equipment suppliers. We believe that large incumbent suppliers have numerous competitive advantages that include pricing leverage, established customer relationships, broad product portfolios, penetration into emerging markets and large service and support teams. In addition, industry reports continue to be very cautious regarding the optical networking environment. Sycamore’s target market, the optical switching segment, remains a very small percentage of the total market.

As reported previously, we have engaged Morgan Stanley to assist us in identifying and assessing all available alternatives to maximize shareholder value. We continue to review the strategic and financial alternatives available to Sycamore including but not limited to: (i) a sale to another entity; (ii) acquisitions of, or mergers or other combinations with, companies with either complementary technologies or in adjacent market segments; (iii) remaining a stand-alone entity; (iv) additional restructurings of our operations or business and (v) recapitalization alternatives, such as stock buybacks and cash distributions. Changes, if any, implemented as a result of the strategic alternatives review could affect the basic nature of our Company. During the course of this review, we intend to continue to follow our existing strategy and objectives as a stand-alone provider of optical networking equipment.

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Our total cash, cash equivalents and investments were $949.0 million at January 29, 2005. Included in this amount were cash and cash equivalents of $373.2 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 and financial 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.

Revenue Recognition

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectibility is reasonably assured. The most significant revenue recognition judgments typically involve customer acceptance, whether collection is reasonably assured and multiple element arrangements. In instances where customer acceptance is specified, revenue is deferred until all acceptance criteria have been met. We determine collectibility based on creditworthiness of customer, analysis and customer’s payment history. Service revenue is recognized as the services are performed or ratably over the service period. 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 and recognized when revenue recognition criteria for each element is met.

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.

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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. 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 second quarter of fiscal 2005, we recorded a net charge of $0.4 million to operating expenses for additional facility consolidation charges. In addition, during the fourth quarter of fiscal 2004, we recorded a net charge of $0.3 million to operating expenses due to less favorable sublease assumptions and 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 uncertainties involved in such matters, it is possible that we may subsequently incur costs in excess of 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 January 29, 2005, we had $9.8 million accrued as part of our restructuring liability relating to facility consolidations.

Results of Operations

Revenue

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

	Three Months Ended								Six Months Ended
	January 29, 2005		January 24, 2004		Variance in Dollars		Variance in Percent		January 29, 2005		January 24, 2004		Variance in Dollars		Variance in Percent
Revenue
Product	$	11,225	$	3,673	$	7,552	205.6	%	$	22,164	$	9,829	$	12,335	125.5	%
Service		3,667		3,202		465	14.5	%		6,943		5,487		1,456	26.5	%
Total revenue	$	14,892	$	6,875	$	8,017	116.6	%	$	29,107	$	15,316	$	13,791	90.0	%

Total revenue increased for the three and six months ended January 29, 2005 compared to the same periods ended January 24, 2004. The increase for the three and six months ended January 29, 2005 was due to an increase in both product and service revenue. Product revenue consists primarily of sales of our optical networking products including the SN 3000 and SN 16000 optical switches. Product revenue increased for the three and six months

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ended January 29, 2005 compared to the same periods ended January 24, 2004. The increase for the three and six months ended January 29, 2005 was primarily due to a higher level of product shipments including shipments for the GIG-BE project described below. Service revenue consists primarily of fees for services relating to the maintenance of our products and to a lesser extent installation services and training. Service revenue increased for the three and six months ended January 29, 2005 compared to the same periods ended January 24, 2004. The increase for the three and six months ended January 29, 2005 was primarily due to a higher level of maintenance and training revenue.

During 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 fiscal 2004, through our distribution partner, Sprint Government Systems Division, DISA purchased certain evaluation equipment and began accepting GIG-BE product shipments.

For the second quarter of fiscal 2005, GIG-BE revenue accounted for 25.1% of our revenue and 3 other customers accounted for 26.2%, 15.2% and 14.6% of revenue. International revenue represented 57% of our total revenue for the second quarter of fiscal 2005. For the second quarter of fiscal 2004, three international customers accounted for the majority of our revenue and international revenue represented 98% of our total revenue. We expect future revenue will continue to be highly concentrated in a relatively small number of customers and that international revenue may continue to represent a significant percentage of future revenue. GIG-BE deployments in any given quarter may cause shifts in the percentage mix of domestic and international revenue. The loss of any one of these customers or any substantial reduction in orders by any one of these customers could materially and adversely affect our business, financial condition and results of operations.

Gross profit

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

	Three Months Ended						Six Months Ended
	January 29, 2005			January 24, 2004			January 29, 2005			January 24, 2004
Gross profit :
Product	$	4,630		$	1,444		$	8,889		$	3,912
Service		1,813			1,008			3,136			1,077
Total	$	6,443		$	2,452		$	12,025		$	4,989
Gross profit :
Product		41.2	%		39.3	%		40.1	%		39.8	%
Service		49.4	%		31.5	%		45.2	%		19.6	%
Total		43.3	%		35.7	%		41.3	%		32.6	%

Product gross profit

Cost of product revenue consists primarily of amounts paid to third-party contract manufacturers for purchased materials and services and other fixed manufacturing costs. Product gross profit increased for the three and six months ended January 29, 2005 compared to same periods ended January 24, 2004. The increase for the three and six months ended January 29, 2005 was primarily the result of higher product revenue partially offset by changes in customer mix and distribution channels. In the future, we believe that product gross profit may fluctuate due to pricing pressures resulting from intense competition for limited optical switching opportunities worldwide. In addition, product gross profit may be affected by 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, increases in component pricing, the introduction of new products or entering new markets with different pricing and cost structures.

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Service gross profit

Cost of service revenue consists primarily of costs of providing services under customer service contracts which include salaries and related expenses and other fixed costs. Service gross profit increased for the three and six months ended January 29, 2005 compared to the same periods ended January 24, 2004. The increase for the three and six months ended January 29, 2005 was primarily due to increased revenues and a reduction in service delivery costs primarily as a result of lower fixed support 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.

Operating Expenses

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

	Three Months Ended									Six Months Ended
	January 29, 2005		January 24, 2004		Variance in Dollars			Variance in Percent		January 29, 2005		January 24, 2004		Variance in Dollars			Variance in Percent
Research and development	$	11,217	$	11,751	$	(534	)	(4.5	)%	$	22,889	$	23,049	$	(160	)	(0.7	)%
Sales and marketing		3,011		4,345		(1,334	)	(30.7	)%		6,155		8,756		(2,601	)	(29.7	)%
General and administrative		1,932		1,482		450		30.4	%		4,180		3,450		730		21.2	%
Stock-based compensation		266		1,768		(1,502	)	(85.0	)%		774		3,073		(2,299	)	(74.8	)%
Total operating expenses	$	16,426	$	19,346	$	(2,920	)	(15.1	)%	$	33,998	$	38,328	$	(4,330	)	(11.3	)%

Research and Development Expenses

Research and development expenses consist primarily of salaries and related expenses and prototype costs relating to design, development, testing and enhancements of our products. Research and development expenses decreased for the three and six months ended January 29, 2005 compared to the same periods ended January 24, 2004. The decrease in expenses for the three months ended January 29, 2005 was primarily due to lower fixed expenses and lower project materials costs partially offset by an increase in personnel-related expenses. The decrease in expenses for the six months ended January 29, 2005 was primarily due to lower fixed expenses, partially offset by higher project materials costs and personnel-related expenses.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of salaries, commissions and related expenses, customer evaluations inventory and other sales and marketing support expenses. Sales and marketing expenses decreased for the three and six months ended January 29, 2005 compared to the same periods ended January 24, 2004. The decrease in expenses for the three and six months ended January 29, 2005 was primarily due to a reduction in the costs of evaluation equipment and lower personnel-related expenses.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related expenses for executive, finance and administrative personnel, professional fees and other general corporate expenses. General and administrative expenses increased for the three and six months ended January 29, 2005 compared to the same periods ended January 24, 2004. The increase for the three and six months ended January 29, 2005 was primarily due to increased professional and advisory fees. Expenses may continue to increase due to continued exploration of strategic alternatives.

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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. Total stock-based compensation expense decreased for the three and six months ended January 29, 2005 compared the same periods ended January 24, 2004. The decrease for the three and six months ended January 29, 2005 was primarily due to lower deferred compensation balances resulting from the ongoing vesting of stock options and restricted shares with exercise or sales prices that were deemed to be below fair market value.

Interest and Other Income, Net

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

	Three Months Ended								Six Months Ended
	January 29, 2005		January 24, 2004		Variance in Dollars		Variance in Percent		January 29, 2005		January 24, 2004		Variance in Dollars		Variance in Percent
Interest and other income, net	$	4,672	$	3,895	$	777	20.0	%	$	8,870	$	8,163	$	707	8.7	%

Interest and other income, net increased for the three and six months ended January 29, 2005 compared to the same periods ended January 24, 2004. The increase was primarily due to higher interest rates.

Provision for Income Taxes

We did not provide for income taxes for the three and six months ended January 29, 2005, or for the same periods in fiscal 2004, due to our cumulative tax 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 deferred tax assets. Under the provisions of the Internal Revenue Code of 1986, as amended, if certain substantial changes in our ownership were to occur, we could be limited in the future in the amount of net operating losses and other tax attributes that could be utilized annually to offset future taxable income. Future tax benefits have not been recognized in the financial statements, as their utilization is considered uncertain based on the weight of available information.

Liquidity and Capital Resources

Total cash, cash equivalents and investments were $949.0 million at January 29, 2005. Included in this amount were cash and cash equivalents of $373.2 million, compared to $45.4 million at July 31, 2004. The increase in cash and cash equivalents for the six months ended January 29, 2005 was due to cash provided by investing activities of $338.2 million and cash provided by financing activities of $3.9 million partially offset by cash used in operating activities of $14.4 million.

Cash provided by investing activities of $338.2 million consisted primarily of net maturities of investments of $339.6 million. Cash provided by financing activities of $3.9 million consisted of proceeds from employee stock plan activity. Cash used in operating activities of $14.4 million consisted of the net loss for the period of $13.1 million, adjusted for net non-cash charges totaling $3.4 million and changes to working capital totaling $4.7 million. The most significant changes to working capital were a decrease in deferred revenue of $3.0 million, a decrease in accrued restructuring costs of $1.7 million, a decrease in prepaids and other current assets of $1.1 million and an increase in accrued expenses and other current liabilities of $0.9 million. Non-cash charges include depreciation and amortization and stock-based compensation.

Our primary source of liquidity comes from our cash and cash equivalents and investments, which totaled $949.0 million at January 29, 2005. Our investments are classified as available-for-sale and consist of securities that are readily convertible to cash, including certificates of deposits, commercial paper, government securities and auction-rate securities, with contractual maturities ranging from February 2005 to July 2033. At January 29, 2005, $396.2

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million of investments with maturities of less than one year were classified as short-term investments, and $179.6 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 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 January 29, 2005, more than 37% of our accounts receivable balance was attributable to 5 international customers. As of January 29, 2005, 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. We currently intend 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.

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.

Commitments, Contractual Obligations and Off-Balance Sheet Arrangements

At January 29, 2005, our off-balance sheet arrangements, which consist entirely of contractual commitments for operating leases and inventory purchase commitments, were as follows (in thousands):

	Total		Less than 1 Year		1-3 Years		3-5 Years
Operating Leases	$	12,179	$	4,321	$	7,858	—
Inventory Purchase Commitments		6,491		6,491		—	—
Total	$	18,670	$	10,812	$	7,858	—

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 has had a significant impact on our business. The industry decline and the continued spending constraints in the optical networking market have caused a decrease in the demand for our products which has had an adverse impact on our revenue and profitability.

We anticipate that our current and prospective customers will not materially increase their optical switching capital spending with us in the near future. As a result, we anticipate that our revenue, 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 many ways, including the following ways:

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

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• consolidation of our customers may cause delays, disruptions or reductions in their capital spending plans;

• 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

• any bankruptcies or weakening 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.

Consolidation in the industry may lead to increased competition and harm our business.

The industry has experienced consolidation and we expect this trend to continue. Consolidation among our customers may cause delays or reductions in capital expenditure plans and/or increased competitive pricing pressures as the number of available customers declines and their relative purchasing power increases in relation to suppliers. Any of these factors could adversely affect our business.

Our strategy to pursue strategic and financial alternatives may not be successful.

We face numerous challenges as a focused optical switching vendor. In order to address these challenges we continue to pursue alternatives available to us, including but not limited to: (i) a sale to another entity, (ii) acquisitions of, or mergers or other combinations with companies with either complementary technologies or in adjacent segments, (iii) remaining a stand-alone entity, and (iv) additional restructuring of our operations or business. Any decision regarding strategic alternatives 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 or benefits of the strategic alternative selected. 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 including but not limited to stock buybacks and cash distributions. As reported previously, we have engaged Morgan Stanley to assist us in the review of strategic and financial alternatives for our Company. There can be no assurances that any transaction or other corporate action will result from our review of strategic and financial alternatives. Further, there can be no assurance concerning the success, type, form, structure, nature, results, timing or terms and conditions of any such potential action, even if such an action does result from this review.

Whether or not we pursue any specific strategic alternative, the value of your shares may decrease.

The Company continues to review various strategic alternatives, including but not limited to, a sale to another entity, acquisitions of, or mergers or other combinations with other companies, remaining a standalone entity, additional restructuring of our operations or business and other recapitalization alternatives such as additional cash distributions and stock buybacks. We cannot predict whether, or when, such a transaction or transactions will be available, and we cannot assure you that we would be able to consummate any transaction or transactions or that any transaction or transactions would provide you with a positive return on your investment. Accordingly, whether or not we pursue any specific strategic alternative, the value of your shares may decrease.

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

Our revenue depends on the commercial success of our line of optical networking products. Our research and development efforts focus exclusively on optical switching products. In order to remain competitive, 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 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.

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 future revenue. Our planned expenses include significant investments in our research and development, sales and customer service organizations that we believe are necessary to develop, market and sell our products to current and prospective customers, 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 adversely affected by the decline in the telecommunications industry which began in 2001. During this period, our revenue has decreased significantly and we enacted three separate restructuring programs which have reduced our cost structure and focused our business on the optical switching market. In order to remain competitive, 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 net loss for the second quarter of fiscal 2005 of $5.3 million and a cumulative net loss of $794.2 million at January 29, 2005. We expect that our decision to maintain a significant cost structure 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.

Service providers continue to limit their capital spending. Competition for optical switching opportunities is intense and continues to be dominated by large, incumbent equipment suppliers. Competition is based upon a combination of price, established customer relationships, broad product portfolios, large service and support teams, functionality and scalability. Large companies, such as Nortel Networks, Lucent Technologies, Alcatel, Cisco, Tellabs and Ciena Corporation, have historically dominated this market. Many of our competitors have long operating histories and greater financial, technical, sales, marketing and manufacturing resources than we do and are able to devote greater resources to the research and development of new products. These competitors also have long standing existing relationships with our current and prospective customers. To a lesser extent, new competitors have entered the

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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.

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 diverse product lines that allow them the flexibility to price their products more aggressively and absorb the significant cost structure associated with optical switching research and development 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 a limited number of incumbent service providers and the federal government.

There are limited optical switching opportunities since our current and prospective customers have reduced their capital expenditures and competition for these opportunities is intense. In recent quarters our revenue has been concentrated among a limited number of customers. None of our customers is contractually committed to purchase 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 prospective 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 prospective 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,

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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 to which 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 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 established channels to the federal government.

We have a reseller agreement for the sale of our products to the federal government and our products were selected to serve as the optical digital cross connect platform for DISA’s GIG-BE project. Since we have only limited experience in developing and managing such channels, the extent to which 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 federal government market 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 purchase our products in the future. Our failure to sell products to the federal government, including for use in the GIG-BE project, could adversely affect our ability to achieve our planned levels of revenue, which would affect our profitability and results of operations.

Our large customers have substantial negotiating leverage, which may require that we agree to terms and conditions that may have an adverse effect on our business.

The federal government and large telecommunications providers that make up a large part of our target market have substantial purchasing power and potential leverage in negotiating contractual arrangements with us. These customers and prospects may require us to develop additional features and require penalties for failure to deliver such features. As we seek to increase sales into our target markets, we may be required to agree to such terms and conditions, which may affect the timing of revenue recognition and amount of deferred revenues and may have an adverse effect on our business and financial condition.

We depend on a government agency, through our reseller, for a significant amount of our revenue and the loss or decline of existing or future government agency funding could adversely affect our revenue and cash flows.

For the first six months of fiscal 2005, approximately 31% of our revenue was derived from a government agency through our reseller. This government agency (DISA) may be subject to budget cuts, budgetary constraints, a reduction or discontinuation of funding or changes in the political or regulatory environment that may cause the agency to terminate the projects, divert funds or delay implementation. The agency may terminate the contract at any time without cause. A significant reduction in funds available for the agency to purchase equipment would significantly reduce our revenue and cash flows. The significant reduction or delay in orders by the agency would also significantly reduce our revenue and cash flows. Additionally, government contracts are generally subject to audits and investigations by government agencies. If the results of these audits or investigations are negative, our reputation could be damaged, contracts could be terminated or significant penalties could be assessed. If a contract is terminated for any reason, our ability to fully recover certain amounts may be impaired resulting in a material adverse impact on our financial condition 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 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;

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• 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;

• problems with integrating employees and potential loss of key employees; and

• additional regulatory compliance issues.

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;

• 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;

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• 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. In addition, 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 our customer’s demands and may damage our customer relationships.

We have limited internal manufacturing capabilities. We outsource the manufacturing of our products to contract manufacturers who manufacture our products in accordance with our specifications and 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.

The contract manufacturing industry is a highly competitive, capital-intensive business with relatively low profit margins, and 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 and our contract manufacturers 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 and our contract manufacturers purchase several key components from single or limited sources. These key components include commercial digital signal processors, central processing units, field programmable gate arrays,

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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 acceptable 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 planned 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 may increase procurement costs. In addition, consolidation in the optical component industry could result in increased competition for supply of key components 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 purchase orders 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 underestimate 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. If we overestimate or underestimate our product requirements, our revenue and gross profit may be impacted.

Product performance problems could limit our sales to current and prospective customers.

If our products do not meet our customers’ performance requirements, our relationships with current and prospective customers 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.

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 we are not successful in limiting our liability, or 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.

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Our business is subject to risks from international operations.

International sales represented 53% of total revenue in the first six months of fiscal 2005, and we have a substantial international customer base. 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 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.

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.

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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 legal matter could have a material adverse affect 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 and pursue strategic alternatives 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 products, 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 and pursue strategic alternatives 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 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.

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While we believe that we currently have adequate internal controls over financial reporting, we are exposed to risks from recent legislation requiring companies to evaluate those internal controls.

The Sarbanes-Oxley Act of 2002, in particular Section 404, requires our management to report on the effectiveness of our internal controls over financial reporting. Beginning with our Form 10-K for our fiscal year ending July 31, 2005, our independent auditors will be required to attest to and report on the evaluation by our management. We are currently undergoing a review of our internal control systems and procedures and are considering improvements that will be necessary in order for us to ensure compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. Although we believe that our efforts will enable us to provide the required management report and enable our independent auditors to provide their attestation report concerning our assessment and the effectiveness of our internal controls over financial reporting as of our fiscal year end, we can give no assurances that such efforts will be completed in a timely manner and on a successful basis, which could adversely affect the market price of our common stock.

Our earnings may be impacted by the new accounting pronouncements requiring the expensing of equity instruments issued to employees.

We currently account for the issuance of stock options under APB Opinion No. 25, “Accounting for Stock Issued to Employees”. The FASB has issued SFAS 123R, “Share-Based Payment” that changes the accounting treatment for grants of options, sale of shares under our employee stock purchase plan and other equity instruments issued to employees. The provisions of SFAS 123R will require companies to record a charge to earnings for employee stock option grants and other equity incentives beginning July 1, 2005. SFAS 123R will be effective for our first quarter of fiscal 2006 and thereafter. Management is assessing the implications of this revised standard, which may materially impact the Company’s results of operations in the first quarter of fiscal 2006 and thereafter.

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:

• 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;

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• 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;

• fluctuations in stock market prices and volumes; and

• announcements or implementation of a stock buyback or cash distribution.

In addition, the stock market in general, and the Nasdaq National Market and technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies. These broad market and industry factors may materially adversely affect the market price of our common stock, regardless of our actual operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against such companies.

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 January 29, 2005, 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 January 29, 2005, the fair value of the portfolio would decline by approximately $1.1 million. We have the ability to hold our fixed income investments until maturity, and therefore do not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on our 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 59% of total revenue in fiscal 2004, and 53% of revenue in the first six months of fiscal 2005. 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 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 SEC 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 second 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 claims against the Company, several of the Individual Defendants and the underwriters for violations under Sections 11 and 15 of the Securities Act of 1933, as amended (the “Securities Act”), primarily based on the assertion that the Company’s lead underwriters, the Company and several of the Individual Defendants made material false and misleading statements in the Company’s Registration Statements and Prospectuses filed with the Securities and Exchange Commission, or 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. 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 of 1934, as amended (the “Exchange Act”), primarily based on the assertion that the Company’s lead underwriters, the Company and the Individual Defendants defrauded investors by participating in a fraudulent scheme and by making materially false and misleading statements and omissions of material fact during the period in question. 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. 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 sixteen 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 broader discovery obligations and expenses in the litigation than non-test case issuer defendants.

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. This dismissal disposed of the Section 15 and Section 20(a) claims without prejudice, because these claims were asserted only against the Individual Defendants. On October 13, 2004, the court denied the certification of a class in the action against the Company with respect to the Section 11 claims alleging that the defendants made material false and misleading statements in the Company’s Registration Statement and Prospectuses. The certification was denied because no class representative purchased shares between the date of the IPO and January 19, 2000 (the date unregistered shares entered the market), and thereafter suffered a loss on the sale of those shares. The court certified a class in the action against the Company with respect to the Section 10(b) claims alleging that the Company and the Individual Defendants defrauded investors by participating in a fraudulent scheme and by making materially false and misleading statements and omissions of material fact during the period in question.

The Company, the Individual Defendants, the plaintiff class and the vast majority of the other approximately three hundred issuer defendants and the individual defendants currently or formerly associated with those companies have approved, and submitted to the Court for its approval, settlement and related agreements (the “Settlement Agreement”) which set forth the terms of a settlement between these parties. Among other provisions, the Settlement Agreement provides for a release of the Company and the Individual Defendants for the conduct alleged in the action to be wrongful and for the Company to undertake certain responsibilities, including agreeing to assign away, not assert, or release, certain potential claims the Company may have against its underwriters. In addition, no payments will be required by the issuer defendants under the Settlement Agreement to the extent plaintiffs recover at least $1 billion from the underwriter defendants, who are not parties to the Settlement Agreement and have filed a memorandum of law in opposition to the approval of the Settlement Agreement. To the extent that plaintiffs recover less than $1 billion from the underwriter defendants, the approximately three-hundred issuer defendants are required

34

to make up the difference. It is anticipated that any potential financial obligation of the Company to plaintiffs pursuant to the terms of the Settlement Agreement will be covered by existing insurance. The Company currently is not aware of any material limitations on the expected recovery of any potential financial obligation to the plaintiffs from the Company’s insurance carriers. The Company’s insurance carriers are solvent, and the Company is not aware of any uncertainties as to the legal sufficiency of an insurance claim with respect to any recovery by the plaintiffs. Therefore, we do not expect that the Settlement Agreement will involve any payment by the Company. If material limitations on the expected recovery of any potential financial obligation to the plaintiffs from the Company’s insurance carriers should arise, the Company’s maximum financial obligation to plaintiffs pursuant to the Settlement Agreement would be less than $3.4 million. On February 15, 2005, the court granted preliminary approval of the Settlement Agreement, subject to certain modifications consistent with its opinion. The issuer defendants and the plaintiffs have until February 28, 2005 to submit a revised Settlement Agreement which provides for a mutual bar of all contribution claims by the settling and non-settling parties and does not bar the parties from pursuing other claims. The underwriter defendants will have until March 10, 2005 to object to a revised Settlement Agreement. There is no assurance that the parties to the settlement will be able to agree to a revised Settlement Agreement consistent with the court’s opinion, or that the court will grant final approval to the settlement to the extent the parties reach agreement. If the Settlement Agreement is not approved and the Company is found liable, we are unable to estimate or predict the potential damages that might be awarded, whether such damages would be greater than the Company’s insurance coverage, and whether such damages would have a material impact on our results of operations or financial condition in any future period.

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.

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, financial position or cash flows.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In the six months ended January 29, 2005, the following shares of common stock were surrendered to the Company:

	Total shares purchased *	Average price paid per share
October 31, 2004 – November 27, 2004	1,023	$	—
November 28, 2004 – December 25, 2004	—		—
December 26, 2004 – January 29, 2005	5,008		—
Total	6,031	$	—

* Purchased from departing employees pursuant to preexisting contractual rights.

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

Item 4. Submission of Matters to a Vote of Security Holders

At the Company’s annual meeting held on December 20, 2004, the stockholders of the Company elected the following nominees, each to serve for a three-year term as a Class II Director and until their respective predecessors are elected and qualified:

Nominees	For	Withheld
Gururaj Deshpande	252,889,402	996,981
Paul J. Ferri	252,562,102	1,324,281

Daniel E. Smith, Timothy A. Barrows, Paul W. Chisholm and John W. Gerdelman also continued as directors of the Company after the annual meeting.

At the same annual meeting, the stockholders of the Company ratified the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending July 31, 2005 by the following vote:

For	Against	Abstention
252,233,571	1,570,839	81,973

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Item 6. Exhibits

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)
10.1	Letter Agreement between Sycamore Networks, Inc. and Alan Cormier.
10.2	Form of Indemnification Agreement between Sycamore Networks, Inc. and executive officers of Sycamore, including Alan Cormier. (4)
*10.3	Lease Term Expiration Agreement between Sycamore Networks, Inc. and Farley White Associates, LLC dated January 21, 2005.
*10.4	Agreement for the Provision of Hardware, Software, Training, Support and Maintenance and Project Management Services to Vodafone Limited between Vodafone Limited and Sycamore Networks, Inc. dated November 16, 2000, as amended by amendments 1 through 5.
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.

(4) Incorporated by reference to Sycamore Networks, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended October 30, 1999 filed with the Securities and Exchange Commission on December 13, 1999.

* 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.

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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/ Richard J. Gaynor

Richard J. Gaynor

Chief Financial Officer

(Duly Authorized Officer and Principal

Financial and Accounting Officer)

Dated: February 25, 2005

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EX-10.1

Exhibit 10.1

December 21, 2004

Mr. Alan Cormier

Dear Alan:

It is a sincere pleasure for me to extend an employment offer to you as General Counsel with Sycamore Networks reporting to Richard Gaynor, at an annualized salary of $179,950, paid bi-weekly at $6,921.15. Your employment will commence on (TBD). In addition, subject to approval by the Company’s Board of Directors, Sycamore Networks will offer you an option to purchase 50,000 shares of common stock at the fair market value on your first day of employment pursuant to the terms and conditions of the 1999 Stock Incentive Plan, as amended.

In addition to your compensation, you may take advantage of the various benefits offered by Sycamore Networks. These benefits, of course, may be modified or changed from time to time at the discretion of Sycamore Networks. Information regarding Sycamore Networks’ present benefit structure will be provided to you upon commencement of your employment. Where a particular benefit is subject to a formal plan (for example, medical and life insurance, stock options, etc.), eligibility to participate in and receive the particular benefit shall be governed solely by the applicable plan document. Should you ever have any questions, you should ask Human Resources for a copy of the applicable plan document.

Upon (i) termination of your employment by Sycamore Networks (and for this purpose Sycamore Networks includes any successor in interest) other than for cause, your disability or death or by you and for good reason and (ii) and your execution of a Separation Agreement and Release, you will be entitled to salary continuation (of your base salary) as separation pay for a period of twelve months from your last day of active employment, or at Sycamore Networks’ discretion, a lump sum payment of your annual base salary. In addition, Sycamore Networks will pay your COBRA premiums for such twelve month period.

As a condition of your employment offer, it is necessary for you to read, sign, date and have witnessed the enclosed Employee Agreement Regarding Confidentiality and Inventions, which you should carefully review. You must sign and return the Agreement prior to your first day of employment. This offer is contingent upon your certification to us that you do not have any continuing legal obligations to your previous employer, including any agreement relating to confidentiality, non-solicitation or non-competition. If you do have such an agreement, please fax it to our Human Resources department along with a copy of this letter for our review. Our fax number is (978) 256-4429.

To comply with Federal law, we ask that you bring certification of eligibility to work in the United States on your first workday. A list of acceptable documents is listed on the enclosed I-9 form.

This letter, along with the Employee Agreement Regarding Confidentiality and Inventions, constitutes our entire offer regarding the terms and conditions of your prospective employment by Sycamore Networks. It is our wish that our association be mutually rewarding. You should understand, however, that all employees at Sycamore Networks are employed “at will,” which means that each employee, as well as the Company, has the right to terminate the employment relationship at any time for any reason, with or without cause. The terms of your employment shall be governed by the laws of the Commonwealth of Massachusetts.

We look forward to your joining Sycamore Networks and feel confident the relationship will be mutually rewarding. Please remember to return to me prior to your first day of employment the Employee Agreement Regarding Confidentiality and Inventions and the signed original of this offer letter indicating your official start date. If you have any questions, do not hesitate to call. This offer will be valid for five (5) business days from above date.

Sincerely,

Cheryl L. Moisan

Human Resources Manager

Enclosure (1)

1. Employee Agreement Regarding Confidentiality and Inventions

I have read, understand and accept the terms and conditions as outlined in the offer letter, and the Employee Agreement Regarding Confidentiality and Inventions.

I certify that (check one):

__________	I do not have any continuing legal obligations to my previous employer.
__________	I have provided Sycamore Networks with a copy of my agreement with my previous employer.
	Date Provided:	__________________________________________________
	Previous Employer:	__________________________________________________
	Name of Agreement:	__________________________________________________

Signed:                                                                                                        Start Date:                                 

EX-10.3

Exhibit 10.3

LEASE TERM EXPIRATION AGREEMENT

THIS LEASE TERM EXPIRATION AGREEMENT (this “Agreement”) is made and entered into between Farley White Associates, LLC, a Massachusetts limited liability company having an address c/o Farley White Interests, Suite 1200, 155 Federal Street, Boston, MA 02110, Attn: Roger W. Altreuter (Facsimile Number: (617) 338-2387) (“Landlord”) and Sycamore Networks, Inc., a Delaware corporation having an address of 220 Mill Road, Chelmsford, MA 01824-4144, Attn: John Granara, Corporate Controller (Facsimile Number: (978) 244-1097) (“Tenant”) as of the 21st day of January, 2005.

Recitals

1. Landlord and Tenant entered in that certain Lease dated March 23, 2000 in connection with premises in the building commonly known and numbered as 150 Apollo Drive, Chelmsford, Massachusetts (the “Building”), as more particularly described therein (the “Lease”).

2. Tenant has exercised its option under Section 2.2(d) of the Lease to terminate the Lease as of August 31, 2005 (the “Scheduled Expiration Date”).

3. Tenant has requested, and Landlord has agreed, to cause the Term of the Lease to expire earlier than the Scheduled Expiration Date, upon the terms and conditions more particularly set forth herein.

4. Capitalized terms used herein and not otherwise defined herein shall have the meaning set forth in the Lease.

Agreement

NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1. Lease Termination. Landlord and Tenant hereby agree that effective as of 11:59 p.m. on the date hereof (such date being referred to herein as the “Revised Expiration Date”), the Term of the Lease shall come to an end, whereupon the term of the Lease shall cease and expire on the Revised Expiration Date instead of the Scheduled Expiration Date. Upon such expiration, Tenant shall be released from all liability under the Lease arising from and after the Revised Expiration Date, including without limitation the obligation to pay Base Rent and Tenant’s share of Expenses for the Property and there shall not be any reconciliations or “true ups” of Tenant’s share of the Expenses for the Property; provided, however, that the foregoing provisions of this paragraph shall not limit any Tenant’s obligation accruing prior to or arising out of acts occurring prior to the Revised Termination Date, in accordance with the terms of the Lease.

2. Early Expiration Payment. No later than February 2, 2005, Tenant shall pay to Landlord, or at Landlord’s written direction, in immediately available funds the amount of [*] (the “Expiration Payment”), in the form of a certified or cashier’s check, or wire transfer as consideration for Landlord’s agreement to the early expiration of the Term of the Lease in accordance with the terms of this Agreement.

3. Yield Up; Exterior Sign. On or before the Revised Expiration Date, Tenant shall surrender all keys to the Premises, and yield up the Premises in accordance with the provisions of the Lease, provided, however, that Tenant shall be and hereby is released, pursuant to the terms of this Agreement, from any obligation that Tenant might otherwise have under the terms of the Lease to remove and/or restore any improvements in the Premises, other than the obligations to remove the exterior building sign, which Tenant shall remove on the terms and conditions pursuant to the first sentence of the next succeeding paragraph of this Section 3. Simultaneously with the execution and delivery of this Agreement, Tenant shall execute and deliver to Landlord a Bill of Sale in the form attached hereto in order to convey to Landlord, as of the Revised Expiration Date, title to the personal property and equipment of Tenant identified in that Bill of Sale. Landlord has performed an inspection of the Premises and acknowledges that to its knowledge, except with respect to Tenant’s obligation to remove the exterior sign, the Premises is being surrendered in the condition required by the Lease.

In addition to the foregoing, Landlord agrees that Tenant shall on or before January 31, 2005, and without unreasonably interfering with the use and occupancy of the Premises by any new tenant thereof, remove the exterior sign from the Premises, provided that Tenant agrees not to materially damage the condition of the Premises during such removal process and to promptly repair any damage caused by it, and to indemnify, defend and hold harmless Landlord from any claims for personal injury resulting therefrom.

4. Tenant Release. Effective as of the Revised Expiration Date, Tenant and its successors and assigns hereby release, acquit, satisfy and forever discharge Landlord and its employees, agents, officers, subsidiaries, affiliates, partners, trustees, beneficiaries, members, successors and assigns, from any and all actions, causes of actions, claims, demands, rights, damages, losses, expenses, occurrences and liabilities, of any kind whatsoever, both known and unknown, arising out of any matter, happening or thing, from the beginning of time relating to the Lease, but excluding any express obligation of Landlord hereunder not satisfied as of the Revised Expiration Date.

5. Landlord Release. Effective as of the Revised Expiration Date, Landlord and its successors and assigns hereby release, acquit, satisfy and forever discharge Tenant and its employees, agents, officers, subsidiaries, affiliates, partners, trustees, beneficiaries, members, successors and assigns, from any and all actions, causes of actions, claims, demands, rights, damages, losses, expenses, occurrences and liabilities, of any kind whatsoever, both known and unknown, arising out of any matter, happening or thing, from the beginning of time relating to the Lease, but excluding (a) any express obligation of Tenant hereunder not satisfied as of the Revised Expiration Date, (b) any obligations of Tenant under the Lease to indemnify Landlord for any act or omission resulting in any third party claim for personal injury, death or property damage, and (c) any obligation of Tenant under the Lease relating to Hazardous Materials.

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6. Adjustment. Landlord shall pay to Tenant a sum equal to all electric and other utility bills paid by Tenant for utility service to the Premises for the period commencing on January 1, 2005 and ending on the Revised Expiration Date. Such payment shall be made within seven (7) days of Tenant’s rendering an invoice therefor to Landlord with reasonable supporting documentation. The foregoing shall be the only adjustment between Landlord and Tenant with respect to rent under the Lease. For example, Landlord shall have no obligation to reimburse Tenant for any Base Rent paid for the month of January 2005, even if the Revised Expiration Date occurs prior to January 31, 2005.

7. Notice of Lease. Simultaneously with the execution hereof, Tenant shall execute and deliver to Tenant the Notice of Termination of Lease attached hereto, in recordable form in order to terminate that certain Notice of Lease recorded at Middlesex North Registry of Deeds in Book 10806, Page 177.

8. Letter of Credit. Provided Tenant has satisfied its obligations hereunder, to pay the Expiration Payment, and to yield up the Premises as provided in Section 3 hereof, Landlord shall return to Tenant the letter of credit currently held by Landlord as a Security Deposit under the Lease immediately upon the payment of the Expiration Payment. The failure of Tenant to satisfy such obligations shall constitute a default of Tenant under this Agreement, and Landlord shall be entitled to all rights and remedies at law and equity arising therefrom, but such failure shall not affect the expiration of the Term of this Lease on the Revised Expiration Date. If Tenant fails to timely pay the Expiration Payment, notwithstanding anything to the contrary contained herein, Landlord shall be entitled to treat the same as if it were an Event of Default under the Lease and draw an amount under the letter of credit equal to the Expiration Payment.

9. Tenant’s Representations and Warranties. Tenant hereby represents and warrants to Landlord that Tenant has full authority to execute this Agreement, the Bill of Sale and the Notice of Termination of Lease without the joinder or consent of any other party and that Tenant has not assigned any of its rights, title or interest in or to the Lease to any other party.

10. Landlord’s Representations and Warranties. Landlord hereby represents and warrants to Tenant that Landlord has full authority to execute this Agreement, the Bill of Sale and the Notice of Termination of Lease without the joinder or consent of any other party and that Landlord has not assigned any of its rights, title or interest in or to the Lease to any other party.

11. Survival of Covenants; Miscellaneous. The covenants, agreements, representations and warranties of Landlord and Tenant contained in this Agreement shall survive the expiration of the Term of the Lease. This Agreement shall be binding upon and inure to the benefit of Tenant and Landlord and their respective heirs, executors, administrators, personal and legal representatives, successors and assigns. This Agreement embodies the entire agreement between the parties relative to the subject matter hereof, and there are no other oral or written agreements between the parties, nor any representations made by either party relative to the subject matter hereof, which are not expressly set forth herein. This Agreement may be amended only by a written instrument executed by the party or parties to be bound thereby. This Agreement shall be interpreted as a Massachusetts contract. This Agreement may be signed in two or more counterparts, each of which shall be deemed an original but all of which shall together constitute one and the same instrument. Facsimile signatures shall be treated for all purposes as originals.

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12. Enforcement. If either party hereto brings any action to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to payment of its reasonable attorneys’ fees and costs by the non-prevailing party.

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EXECUTED AS A SEALED INSTRUMENT as of the date first set forth above.

LANDLORD:
FARLEY WHITE ASSOCIATES, LLC
By:
	Roger W. Altreuter
	Manager
TENANT:
SYCAMORE NETWORKS, INC.
By
Name:	Richard J. Gaynor
Title:	CFO

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EX-10.4

Exhibit 10.4

AGREEMENT FOR THE PROVISION OF HARDWARE, SOFTWARE,

TRAINING, SUPPORT AND MAINTENANCE AND PROJECT MANAGEMENT

SERVICES TO VODAFONE LIMITED

Between

Vodafone Limited

-and-

Sycamore Networks, Inc.

November 16, 2000

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TABLE OF CONTENTS

CLAUSE	HEADING
1.	DEFINITIONS	4
2.	COMMENCEMENT AND DURATION	8
3.	SCOPE OF AGREEMENT	8
4.	OBLIGATIONS OF THE SUPPLIER	8
5.	LICENCE	10
6.	USE ON A NON DESIGNATED SYSTEM	11
7.	BACK UP COPIES	12
8.	OUTSOURCING	12
9.	PACKAGING	12
10.	[*]	12
11.	[*]	12
12.	SOURCE CODE AND ESCROW	12
13.	NEW VERSIONS	14
14.	PRICE	14
15.	PURCHASE ORDERS, PAYMENT AND DELIVERY	15
16.	SERVICES	18
17.	WARRANTIES	18
18.	CONFIDENTIALITY	23
19.	TITLE AND RISK	24
20.	[*]	24
21.	INTELLECTUAL PROPERTY	24
22.	HEALTH AND SAFETY	25
23.	FORCE MAJUERE	26
24.	TERMINATION	26
25.	LIABILITIES AND INDEMNITIES	27
26.	INSURANCE	28
27.	SUBCONTRACTING	28
28.	ASSIGNMENT	28
29.	NOTICES	29
30.	AGENCY OR PARTNERSHIP	29
31.	WAIVER	29
32.	ENFORCEMENT	29
33.	HEADINGS	30
34.	SEVERABILITY	30
35.	AMENDMENTS	30
36.	SURVIVAL	30
37.	GOVERNING LAW	30
APPENDIX A	PRICE	32
APPENDIX B	SPECIFICATION	33
APPENDIX C	DESIGNATED SYSTEMS	34
APPENDIX D	PROJECT PHASES	35
APPENDIX E	[*]	36

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APPENDIX F	DESCRIPTION OF SUPPORT SERVICES	37
APPENDIX G	HARDWARE EQUIPMENT	38
APPENDIX H	LICENSED PROGRAMS	39
APPENDIX I	QUALITY ASSURANCE	40

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This Agreement is made this day the 16th day of November, 2000,

between

Vodafone Limited (registered company number 01471587), whose registered office is at The Courtyard, 2 – 4 London Road, Newbury, Berkshire RG14 1JX. England (‘Vodafone’) of the one part

and

Sycamore Networks, Inc., a Delaware corporation, whose principle place of business is at 150 Apollo Drive, Chelmsford, MA 01824, USA (‘Supplier’) of the other part.

WHEREAS:

Supplier has agreed to provide the hardware, software, training, support and maintenance and project management services to Vodafone on the following terms.

NOW IT IS HEREBY AGREED AS FOLLOWS:-

1. DEFINITIONS

“Agreement”	means this document, including all schedules and appendices and all documents referred to in it as forming part of it, in each case as amended from time to time.
[*]	[*]
“Change of Control”	in respect of an entity shall mean (A) a merger or reorganization transaction of the entity, where the stockholders or shareholders of the entity immediately prior to the transaction do not hold immediately after the transaction, directly or indirectly, shares of capital stock of the entity surviving the transaction that represent a majority of the voting power of all the capital stock of such surviving entity, and (B) where a person (who at the date of this Agreement is not an affiliate of the entity) acquires beneficial ownership of shares of capital stock of the entity that represent greater than 50% of the voting power of all capital stock of such entity party immediately following such acquisition.

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“Computer Program”	includes instructions and data recorded or stored and/or processed by any means whatsoever.
“Confidential Information”	has the meaning attributed to it in Clause 18.
“Delivery Date”	means the date that specified Equipment and Licensed Programs are to be delivered to a specified Site.
“Designated System”	means the system or systems detailed in Appendix C
“Equipment”	means all the hardware equipment detailed within Appendix G.
“Escrow Provisions”	means the provisions of Clause 12.
“Faults”	means the failure of the Solution for a Project Phase to function and perform fully in accordance with the Specification.
“Licensed Programs”	means all the Computer Programs identified in Appendix H.
“New Version”	means in relation to any Licensed Program any improved, modified or corrected version of the Licensed Program issued by the Supplier from time to time;
“Sites”	means the locations specified in accepted Purchase Orders where the Supplier shall deliver any Solution Element.
“Solution”	for a Project Phase means all the Licensed Programs, Equipment and project management services ordered by Vodafone under Purchase Orders accepted under this Agreement for such Phase and the “Solution” means all the Licensed Programs, Equipment and project management services ordered by Vodafone under Purchase Orders accepted this Agreement.
“Solution Element”	means any part of the Solution.
“Source Code”	in relation to any Licensed Program shall include the machine readable code which when compiled generates the Licensed Program and which is in a format understandable by a person trained in the field;

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“Source Code Information”	means (i) all information of any description which explains the structure, design, operation, functionality and/or sequence of execution of the Licensed Program; and (ii) all information of any description which relates to the maintenance and/or support of the Licensed Program
“Specification”	means Supplier’s specifications and associated Program Documentation for the Equipment and Licensed Programs ordered by Vodafone under accepted Purchase Orders this Agreement as detailed within Appendix B and such other published specifications and associated Program Documentation of Supplier as the parties hereto may from time to time agree in writing are “Specifications” for purposes of this Agreement; provided that, in the case of an inconsistency between the Technical Annex and any other Specification, unless the parties otherwise expressly agree, the Technical Annex shall prevail.
“Software Products”	means any software programs or firmware supplied by Supplier to Vodafone pursuant to this Agreement including but not limited to the Licensed Programs.
“Technical Information”	means documentation or records developed or possessed by Supplier (with the right to disclose the same to others) at any time during the term of this Agreement which relate to Supplier’s manufacturing processes, Specifications, Program Documentation, patents, know-how and other techniques necessary for the manufacturing of the Solution Elements, including but not limited to, such documentation or records relating to process sheets, manufacturing assembly instructions, bills of material, approved supplier lists, schematics, artwork, blueprints, test procedures, pertinent test equipment specifications, fixtures and test bed specifications, internal/external software, diagnostics and microcode as are necessary (i) to have manufactured, or test the Solution from Supplier and/or Supplier’s suppliers (with such authorisation letter(s) from Supplier to Vodafone as necessary), and/or (ii) to duplicate, Supplier’s manufacturing equipment.

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“Personnel”	means Supplier’s employees or subcontractors assigned by the Supplier to provide the Solution.
“Price”	means the agreed price for the Solution as specified within this Agreement.
“Program Documentation”	means in relation to the Solution or part thereof the instruction manuals and user guides which are supplied by the Supplier to Vodafone for the Equipment and Licensed Programs ordered by Vodafone under Purchase Orders accepted under this Agreement and are recorded or stored by any means whatsoever (including: in writing or other visible form; on tape or disc; by mechanical or electrical, electronic, magnetic or optical means; and whether or not such reproductions will result in a permanent record being made).
Project Phase	means one of the phases identified as such in Appendix D.
Technical Annex	means the OTIS Technical Annex that is agreed by the parties to be included in the Specifications.
“Terms and Conditions”	means the terms and conditions of purchase set out in this Agreement.
“Use”	means the ordinary use of the Solution in the course of Vodafone’s business as contemplated by the Technical Annex, including: (i) the use of the Solution on the Designated System; (ii) any associated transmission over any private or public network of any description whatsoever; and (iii) backup, emergency and disaster recovery use in accordance with Clause 7.
“Vodafone Group Company”	means Vodafone Group Plc and any company or corporation in respect of which Vodafone Group Plc owns (directly or indirectly) more than 15% of the issued share capital;
“Vodafone Property”	means property belonging to Vodafone at any given time

Unless the Agreement otherwise requires the singular shall include the plural and the plural shall include the singular and words importing persons shall include firms and corporations.

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Reference to Clauses and Appendices are references to Clauses and Appendices of and to this Agreement. Any Appendices attached hereto shall form part of this Agreement.

2. COMMENCEMENT AND DURATION

2.1 This Agreement shall be effective from the date hereof and unless terminated earlier in accordance with the terms hereof, shall continue in effect for a period of [*] (the “Initial Term”), after which it will renew automatically for successive [*] additional terms unless either party provides written notice of termination to the other party at least [*] prior to expiration of the initial term or any extension thereof.

2.2 This Agreement shall supersede all previous Agreements and arrangements between the parties governing the provision of the Solution.

3. SCOPE OF AGREEMENT

3.1 These Terms and Conditions shall apply to the provision of the Solution by the Supplier, its agents, employees, successors and assigns to the exclusion of any other terms and conditions.

3.2 No variation to these Terms and Conditions shall be binding unless made in accordance with Clause 35.

4. OBLIGATIONS OF THE SUPPLIER

4.1 Each Solution Element supplied shall correspond in all respects with the agreed Specifications therefor in effect at the date of such supply as detailed in Schedule B attached hereto.

4.2 Without prejudice to other remedies it may have, Vodafone shall require the Supplier to make good the Solution or part of the Solution which does not comply with the Specification in effect at the date of supply thereof or any terms and conditions of this Agreement pursuant to the warranty provisions in Clause 17 below.

4.3 The Supplier shall co-operate with the representatives of Vodafone and provide at all reasonable times the necessary access to the Supplier’s facilities to enable those representatives to carry out their duties effectively provided that such access does not disrupt the Supplier’s operation.

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4.4 As and when required to do so, the Supplier shall provide the necessary evidence to Vodafone to show that the standards of training relevant to the Solution are of the standard required by Vodafone as set forth in Appendix I attached hereto.

4.5 In the provision of the Solution in accordance with the Terms and Conditions of this Agreement, the Supplier shall comply with all applicable Acts of Parliament, statutory provisions, bylaws, regulations and codes of practice issued by any government or local authoritative body.

4.6 The Supplier shall bear sole responsibility for payment of the salaries or other remuneration to its Personnel who are engaged in the supply of the Solution. The Supplier shall pay and report for all Personnel assigned to the delivery of the Solution, any income tax, national insurance contributions or other payments that the Supplier as employer is required to pay by law. The Supplier shall be solely responsible for any health or disability insurance, retirement benefits, or other welfare or pension benefits (if any) to which such Personnel may be entitled. The Supplier agrees to defend, indemnify, and hold harmless Vodafone, Vodafone’s officers, directors, employees and agents, and the administrators of Vodafone’s benefit plans, from and against any claims, liabilities or expenses relating to such remuneration, tax, national insurance, or benefits provided that Vodafone shall promptly notify the Supplier of any such claim when and as it comes to Vodafone’s attention, give Supplier sole control over the defence and/or settlement of the claim, and co-operate with Supplier in the defence and resolution of such claim and not settle or otherwise dispose of such claim without the Supplier’ prior written consent.

4.7 The Supplier further undertakes as follows:

4.7.1 to employ a sufficient number of suitably qualified Personnel to ensure the proper fulfilment of its obligations under this Agreement.

4.7.2 from time to time upon the reasonable request of Vodafone to provide the necessary proof to Vodafone to show that the level of training of its Personnel relevant to the delivery and subsequent upkeep and running of the Solution is of the standard required by all relevant legislation and regulations.

4.7.3 to provide management information to Vodafone and safeguard that the detail of these reports shall be in line with reasonable requests from Vodafone to enable it to effectively manage its business. Such requests may change from time to time. The scope and detail of the information shall be as mutually agreed by the parties.

4.7.4 to inform Vodafone promptly of any Change of Control of the Supplier and of any material change in its organisation or method of doing business

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which might reasonably be expected to materially and adversely affect the performance of the Supplier’s obligations and Vodafone’s rights under this Agreement.

4.7.5 to adhere to security and safety procedures as instructed by Vodafone during the delivery, installation, commissioning and testing of the Solution at Vodafone sites.

4.7.6 not to use Vodafone’s Trade Marks in any way or apply the Trade Mark to any item not Vodafone’s Property or to engage into any practice or activity likely to mislead any third party into believing that an item is Vodafone’s Property or to bring Vodafone’s Trade Mark into disrepute.

5. LICENCE

5.1 On and subject to the provisions of Clause 5, Supplier hereby grants to Vodafone a [*] (subject to Supplier’s right to revoke the Licence in the event Vodafone breaches any term of the Licence), worldwide, non-transferable, non-exclusive licence (the “Licence”) permitting and authorising Vodafone to Use the relevant number of copies of each Licensed Program purchased by it under this Agreement in object code on a Designated System in accordance with this Agreement in conjunction with the Equipment with which such Licensed Program was originally delivered including (in the circumstances permitted by Clause 20 to Use the Licensed Program in the Solution manufacture pursuant to Clause 20.

5.2 The Licence will survive the termination or expiry of this Agreement except in the instance where Vodafone has breached a term of the License and does not cure such default within [*] of receipt of Supplier’s written notice of such breach.

5.3 Subject only to the licenses specifically granted herein, Supplier is the sole owner of all rights, title and interest, including all copyrights, patents, trademarks, industrial designs, trade names, trade secrets and other intellectual property rights in the Software Products. The Software Products are copyrighted and Vodafone is only authorized to reproduce such copies of the Software Products as may be reasonably required solely for back-up purposes and/or in the exercise of the right to manufacture under Clause 20. Vodafone 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 Software Products other than for the internal purposes of Vodafone following Vodafone exercising its right to manufacture under Clause 20. Vodafone is not authorized to license others to reproduce such copies of the Software Products, except as expressly provided in this Agreement. Vodafone agrees to ensure that all copyright, trademark and other proprietary notices of Supplier affixed to or displayed on the Software Products will not be

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removed or modified. Vodafone shall not decompile, disassemble or reverse engineer, any Software Product or any component thereof, except as may be permitted under Clause 12 hereof, in which case Vodafone must notify Supplier in writing. The interface information necessary to achieve interoperability of the Software Products with independently created Computer Programs will be provided by Supplier on request and on payment by Vodafone of Supplier’s reasonable and documented costs and expenses for procuring and supplying such information.

5.4 The rights and licenses granted to Vodafone with respect to any Software Product furnished by Supplier may not be sold, licensed, sublicensed, rented, assigned or otherwise transferred to another party without the prior written consent of Supplier, except Vodafone may assign to an entity controlling, controlled by or under common control of Vodafone Group plc to which the Equipment to which such Software Product is related is sold and provided such entity agrees to be bound by the terms hereof. Vodafone shall provide written notice of such assignment within a reasonable time thereafter.

5.5 Vodafone shall not reverse engineer, decompile or disassemble the Licensed Programs, except Vodafone may reproduce and translate the form of the code of a Software Product where such decompilation is indispensable to obtain the information necessary to achieve the interoperability of an independently created computer program with other programs provided that the conditions of Article 6.1 of the EC Council Directive of 14^th May, 1991 on the legal protection of Computer Programs are met and as long as Vodafone has first asked Supplier to make available interface information concerning such Software Product following application and Supplier cannot make such information available.

6. USE ON A NON DESIGNATED SYSTEM

6.1 Vodafone may Use the authorised number of copies of the Licensed Program on the then Designated Systems.

6.2 Vodafone shall not Use the Licensed Program on anything other than a reasonably equivalent Supplier designated system without the prior consent of the Supplier (which consent the Supplier shall not unreasonably withhold or delay) except that Vodafone may replace the Designated System with a system of a higher specification if it is not reasonably practicable for Vodafone to acquire a system which is reasonably equivalent within such time as Vodafone may need it at a reasonable price.

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7. BACK UP COPIES

7.1 Vodafone may make [*] back-up copies of the Licensed Program. Each such copy will in all respects be deemed to form part of the Solution and will in all respects be subject to all the provisions of this Agreement except this Clause 7.1.

7.2 In addition to making back-up copies of the Licensed Program pursuant to Clause 7.1, Vodafone may install all or any or any combination of the Licensed Program on any computer system (wherever it may be located from time to time) solely for the purpose of maintaining, implementing, operating and testing the emergency and disaster recovery facilities used from time to time by or on behalf of Vodafone.

8. OUTSOURCING

8.1 Vodafone may procure the provision of any service to Vodafone by any person, and in particular (but without prejudice to the generality of this Clause 8.1. Vodafone may outsource the operation of all or any or any combination of its computer systems (including all or any or any combination of the Licensed Program) to a third party. In such circumstances, irrespective of whether such third party acts as Vodafone’s agent or as an independent contractor, such third party may use the Solution under the provisions of this Agreement as if it were Vodafone, except that such use must be restricted to use for the benefit of Vodafone and/or the customers of Vodafone and such third party must agree in writing to be bound by the terms and conditions of this Agreement.

9. PACKAGING

9.1 The Equipment shall be packed and marked (within and outside the packages) in accordance with any applicable laws, regulations or requirements of the carrier, and properly packed and secured so as to reach their destination in an undamaged condition.

10. [*]

11. [*]

12. SOURCE CODE AND ESCROW

12.1 The Supplier shall, [*] and only upon prior agreement (an “Escrow Agreement”) on terms and conditions reasonably satisfactory to Supplier, deposit a copy of the Source Code for the Licensed Program and Program Documentation in escrow with the [*]. The Supplier shall ensure that [*] holds the Source Code under the terms of the Escrow Agreement to which [*] and Supplier are party.

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12.2 The Supplier shall, at its expense, maintain the escrow arrangement with [*] on the terms of Clause 12 for a period of [*] from the last delivery of any Licensed Program under this Agreement or for such further period as Vodafone and the Supplier shall agree; provided that Vodafone continues during such period to purchase maintenance and support services on reasonable terms covering such Licensed Program from Supplier. The Supplier shall keep the Licensed Program, including Source Code and Program Documentation related thereto in escrow.

12.3 In the event of any of the following; (i) upon Vodafone’s written request in a form satisfactory to [*] shall release all of the Source Code and Program Documentation to Vodafone (ii) upon Vodafone’s written request Supplier shall release all of the Source Code Information to Vodafone:

12.3.1 the commencement of any bankruptcy, insolvency, arrangement, receivership, liquidation or other similar proceeding by or against Supplier or any of its material properties or businesses, or the appointment of a trustee, receiver, liquidator or custodian for Supplier or any of its material properties or businesses, or if Supplier suffers the entry of an order for relief under Title 11 of the United States Code, provided such action, proceeding or request is not dismissed with [*]; or

12.3.2 the making by Lessee of a general assignment or deed of trust for the benefit of creditors, or

12.3.3 [*]

12.4 Vodafone shall have the right, free of all charges, to use the Source Code and Program Documentation released under this Clause 12 in order to use or maintain the Licensed Programs and to modify or have modified such Licensed Programs solely for the purposes of maintaining such Licensed Programs, or having them maintained by third parties. Supplier shall retain all right, title and interest to the Licensed Programs.

12.5 The Supplier shall provide a copy of the signed Escrow Agreement to the Vodafone contact as per Clause 29, within [*] of this Agreement being signed.

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13. NEW VERSIONS

13.1 The Supplier shall offer to Vodafone all New Versions that it offers to supply to any other Person provided that Vodafone has a then current support and maintenance agreement covering the Licensed Program for which the New Version is offered. If Vodafone elects to take a New Version, it will be deemed to be part of the Solution from and including the date Vodafone formally [*] the New Version, and will be subject to the provisions of this Agreement.

13.2 Irrespective of whether or not Vodafone elects to take a New Version, the Supplier shall discharge fully all of its obligations under this Agreement in respect of the version of the Solution used by Vodafone immediately before Vodafone elects to take or not to take the New Version.

13.3 The Supplier shall ensure that all New Versions of a Licensed Program are compatible with the functionality of at least the immediately preceding version of such Program. Provided Vodafone has continued to purchase support and maintenance services covering the Licensed Programs, Supplier shall notify Vodafone no later than [*] prior to the release of any New Version which is not compatible with the version of a Licensed Program then in Use by Vodafone.

13.4 Notwithstanding this Clause 13, provided that Vodafone has a then current support and maintenance agreement covering the Solution, the Supplier shall as soon as is reasonably practicable, according to Supplier’s then current practice, inform Vodafone of all anticipated changes and enhancements to the Equipment and Licensed Programs included in the Solution.

13.5 The parties shall meet quarterly to discuss Supplier’s product roadmaps, Vodafone’s network requirements and future technology and product requirements.

14. PRICE

14.1 The Price for each Solution Element shall be as detailed within Appendix A attached hereto. Freight and insurance charges are also as detailed within Appendix A. Prices set forth in Appendix A are [*].

14.2 The Price of the Solution shall be a [*] and shall not be subject to [*] during the Initial Term without any prior written agreement between Vodafone and the Supplier in accordance with Clause 35.

14.3 Supplier and Vodafone agree to review annually the Prices set forth in Appendix A, [*] in the Solution’s market. As a result of such review, Supplier may but is not required [*]. Price reductions shall apply to all Solution Elements shipped after the date of such reduction.

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14.4 During the term of this Agreement, Supplier shall grant to Vodafone pricing and discounts [*] taken as a whole.

14.5 Support and maintenance are a separate cost that is listed in Appendix A.

15. PURCHASE ORDERS, PAYMENT AND DELIVERY

15.1 Forecasts

15.1.1 Vodafone shall provide Supplier with a [*] rolling forecast (the “Forecast”) describing its Solution requirements for the next [*] period updated [*] and including, at a minimum, Vodafone’s forecast of Equipment and Licensed Program quantities for such period; configurations; required shipment and delivery dates; and Vodafone’s forecasted in-service date by route. Such forecast is for Supplier’s convenience only and in no way shall create an obligation on Vodafone to purchase Equipment or Licensed Programs set forth therein.

15.1.2 Vodafone estimates, without assuming any binding obligation in that regard, that it will purchase during the Initial Term Solution Elements having an aggregate [*].

15.2 Purchase Order Procedure

15.2.1 Delivery of Equipment and Licensed Programs and provision of EFI&T services shall only be made against an order by Vodafone on Vodafone’s standard Purchase Order form that is made by fax or electronic data interchange (“EDI”), each order shall by signed in ink or electronically. Such Purchase Order shall specify the Purchase Order number, part number for each item of Equipment desired, quantity of each item of Equipment desired, the Site(s) to which the Equipment is to be delivered, the Project Phase to which the Equipment relates and the dates desired for delivery and installation of the ordered Equipment to such Site(s). Before submitting Purchase Orders by EDI, Vodafone shall provide to Supplier the names of the individuals who have the capacity and are authorised to submit EDI Purchase Orders on behalf of Vodafone (each, an “Authorised User”). Vodafone may change the Authorised Users upon [*] prior written notice. Vodafone shall maintain and assign an EDI password to each Authorised User. Vodafone acknowledges that it has responsibility for password security. Vodafone waives any future challenge to the validity or enforceability of any EDI Purchase Order on the grounds that it was electronically submitted.

15.2.2 Purchase Orders are subject to Supplier’s acceptance, which shall be given in writing. Supplier agrees to accept each Purchase Order that meets the requirements of Clause 15 for the full quantity of Equipment, Licensed Programs

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and EFI&T ordered, provided such Order is substantially consistent in configuration and volume with Vodafone’s Forecast in effect not less than [*] prior to the date that the Purchase Order was made by Vodafone. Supplier shall use reasonable commercial efforts to accept any Purchase Order submitted by Vodafone which is not substantially consistent with such forecast. Supplier shall acknowledge its acceptance of a Purchase Order within [*].

15.2.3 No Purchase Order, acknowledgment form or other ordering document or communication from either party shall vary the terms and conditions of this Agreement unless both parties expressly so agree in writing. In the event of any conflict between the terms and conditions of this Agreement and those of any Purchase Order acknowledgment form or other ordering document or communication, the terms and conditions of this Agreement shall prevail unless both parties expressly so agree in writing.

15.3 Delivery Dates

15.3.1 The Delivery Date for any Equipment and/or Licensed Programs ordered under this Agreement shall be as specified in Vodafone’s accepted Purchase Order, provided [*] from the date of Supplier’s receipt of the Purchase Order. In the event that Vodafone places a Purchase Order for a quantity of Equipment and/or Licensed Programs which is above the quantity in Vodafone’s Forecast in effect not less than [*] prior to the date that such Purchase Order was made by Vodafone, Supplier shall agree to meet a Delivery Date that is not later than [*].

15.3.2 If Supplier is unable to deliver some or all of the Equipment and Licensed Programs on or before the scheduled Delivery Date, Supplier shall promptly notify Vodafone, giving Vodafone a new delivery date and Vodafone may, at its option, [*]. If Supplier is able to deliver some but not all of the full quantity of Equipment or Licensed Programs ordered, Supplier shall notify Vodafone promptly, and Vodafone may, at its sole option, consent to such partial delivery. The undelivered portion of the order shall be subject to the terms of this Clause 15.3.2.

15.3.3 Vodafone and Supplier shall negotiate a mutually agreeable delivery date on any request by Vodafone to accelerate delivery and/or installation of Equipment to a date earlier than the agreed Delivery Date(s).

15.4 Shipping Notification

15.4.1 Supplier shall advise Vodafone of all impending shipments at least [*] in advance of despatch from Supplier’s premises. Such notice shall be by written or telegraphic means and addressed to Vodafone’s project manager for the Solution.

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15.5 Reschedule

15.5.1 Vodafone may by giving Supplier written notice at any time up to [*] prior to the date of shipment reschedule at no charge delivery and/or installation of all or any part of any Purchase Order for a cumulative period not exceeding [*] after the original scheduled Delivery Date. Supplier shall use reasonable efforts to accommodate any request by Vodafone to reschedule within [*] of the date of shipment.

15.6 Cancellation

15.6.1 Upon at least [*] written notice to Supplier prior to the originally-scheduled shipment date of a Purchase Order under this Agreement, Vodafone may cancel any shipment of any Equipment or Licensed Programs without charge. The following cancellation charges shall apply to any cancellations made by Vodafone less than [*] prior to shipment as liquidated damages and not as a penalty based on the number of days prior to the scheduled delivery that written notice of cancellation is received by Supplier:

[*]

15.7 Allocation

15.7.1 In the event that any Equipment or materials used to manufacture the Equipment or personnel used to supply, install, commission and maintain the Solution are in such short supply that Supplier is unable to fill Vodafone’s Purchase Order(s) in full (“Scarce Resource”), at a minimum, Supplier agrees [*].

15.8 Invoices

15.8.1 Purchases from Supplier shall be invoiced by Supplier and paid by Vodafone in [*] unless otherwise agreed in writing by the parties.

15.8.2 The Supplier shall send invoices to Vodafone for each Project Phase upon [*] or [*] for such Project Phase, at the following address:

Vodafone Limited

The Courtyard

2 – 4 London Road

Newbury

Berkshire

RG14 1JX

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15.8.3 Each invoice shall quote the following information:

the Agreement number.

the Project Phase

the description of the Solution Element provided in the Project Phase

a copy of the [*] or a statement that the Solution for the Project Phase was deemed accepted pursuant to Clause 11 above

the unit and total price in pounds sterling for the Solution Element

15.8.4 Each separate invoice submitted by the Supplier shall constitute a separate entitlement to payment from Vodafone.

15.8.5 Vodafone shall pay a [*] invoice [*] from date of receipt of invoice.

15.8.6 [*]

16. SERVICES

16.1 Supplier and Vodafone agree to negotiate in good faith and without undue delay to agree to a separate support and maintenance agreement for the provision by Supplier to Vodafone of the support and maintenance services contemplated by Appendix F at the price set forth in Appendix A and effective from the date of [*].

16.2 Supplier shall continue to provide service and support for elements of the Solution, including but not limited [*], for a period of [*] from the date which Supplier notifies Vodafone in writing of its decision to discontinue the supply of the Solution or any element of the Solution, provided that Vodafone has continued during the term of this Agreement and continues [*] to purchase support and maintenance services covering the Solution. With respect to spares sourced from a third party Supplier’s obligation to provide a supply of spares under this Clause 16.2 [*].

17. WARRANTIES

17.1 The Supplier warrants to Vodafone that the provision of the Solution will be carried out by appropriately qualified and trained Personnel with due care and diligence and in accordance with generally accepted industry standards.

17.2 The signatory for each party to this Agreement warrants and represents to the other party that: (i) he the signatory has all necessary authority, power and capacity to execute this Agreement on behalf of the party on behalf of which he signs; (ii) the party on behalf of which he signs has all necessary authority, power and capacity to enter into this Agreement and that all necessary actions have been taken for that party to enter into it properly and lawfully.

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17.3 Each party warrants and represents to the other that it is properly constituted and incorporated under the Laws of the jurisdiction of its incorporation and has all necessary licences, registrations, consents and approvals from all relevant governmental, quasi-governmental and regulatory bodies to perform its obligations under this Agreement.

17.4 The Supplier warrants that it has the right, power and authority to permit and authorise Vodafone to Use the Solution in accordance with this Agreement.

17.5 The Supplier warrants that except to the extent it has full title to and property in the Solution, the Supplier has obtained the consent of any third party which has any title to, or right or interest in, the Solution to permit and authorise Vodafone to Use the Solution in accordance with this Agreement and that Vodafone’s rights under this Agreement for licenses granted prior to any termination or alteration of Supplier’s relationship with any third party (including the right to Use the Solution) will not be adversely affected by the termination or alteration of the relationship between the Supplier and any such third party subsequent to the granting of any such license.

17.6 The Supplier warrants that the Solution Elements will be of satisfactory quality; free from defects in design and workmanship; shall comply with the Specification therefor at the time of supply; and be fit for the purpose which Vodafone has made known to Supplier in the Technical Annex.

17.7 The Supplier warrants that the Solution is [*] with any other Computer Programs operating on the same system platform or an [*] to this Agreement and that the installation and/or Use of the Solution will not prejudice the functionality or performance of the [*].

17.8 The Supplier warrants that the Licensed Programs do not contain any code or routines which give rise to [*]. However, the Licensed Programs are not warranted to be error free or run uninterrupted.

17.9 The Supplier warrants that the Solution [*] in accordance with the Program Specifications after any period of time or event notwithstanding that Vodafone may be in arrears in paying any charges due under this Agreement.

17.10 Provided that Vodafone uses the Licensed Programs in accordance with the Specification, the Supplier warrants that neither the Licensed Program, nor any other Computer Program used or supplied by the Supplier as part of the Solution, nor any media on which any of the aforesaid are stored or supplied to Vodafone, contain or include any instructions or other code which either alone or in combination with any other instructions or code will, unless such effect is a reasonably foreseeable consequence of the actions of Vodafone or its customers, have (whether directly or indirectly) any adverse effect (whether permanent,

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temporary, irreversible or reversible) on any hardware, Computer Program, data or other thing whatsoever, including:

(a) Any deterioration in the performance of: (i) Any computer equipment whatsoever (whether owned or used by Vodafone or otherwise); and/or (ii) The Licensed Program; and/or (iii) Any other Computer Program whatsoever (whether owned or used by Vodafone or otherwise).

(b) Any damage to or corruption of: (i) Any computer equipment whatsoever (whether owned or used by Vodafone or otherwise); and/or (ii) The Licensed Program; and/or (iii) Any other Computer Program and/or data whatsoever (whether owned or used by Vodafone or otherwise).

17.11 Other than passwords that Vodafone institutes for the Solution, the Supplier warrants that no special hardware, passwords or other devices and/or means are required for Vodafone and its customers to obtain the full benefit and Use of the Licensed Program.

17.12 Warranty Period. Warranties provided in Clause 17 shall apply during the Warranty Period, as defined below. The Warranty Period is [*]. Equipment and Software Product support beyond these periods is available at additional cost under the terms of Supplier’s support and maintenance service agreement. Warranties provided in Clause 17 in respect of a Solution Element shall commence [*].

17.13 Warranty Claims: Supplier shall incur no liability under this warranty if Vodafone fails to provide Supplier with notice of the alleged defect during the applicable Warranty Period. Supplier shall incur no liability under this warranty if Supplier’s tests disclose that the alleged defect is due to causes not within Supplier’s reasonable control, including alteration or abuse of the goods.

17.14 Supplier warrants and represents that the software shall record, store, process, and present calendar dates falling on or after January 1, 2000, in the same manner, and with the same functionality, as such Products record, store, process and present calendar dates falling on or before December 31, 1999. Supplier further warrants that in all other respects such software shall not lose functionality or degrade in performance as a consequence of such software operating in a date later than December 31, 1999. Notwithstanding the foregoing, Supplier shall have no responsibility to the extent any loss of functionality or degradation or failure to record, store, process or present calendar dates falling on or after January 1, 2000 is caused by the failure to so perform of any software of systems other than Supplier’s used by Vodafone or any other supplier of Vodafone.

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17.15 Supplier warrants, except as stated in the Specifications, or as otherwise agreed, that any software provided to Vodafone by Supplier shall, to Supplier’s knowledge as of the date of this Agreement: [*].

17.16 Disclaimer of Warranties: EXCEPT FOR THE EXPRESS WARRANTIES STATED IN THIS SECTION AND [*] THE PRODUCTS ARE PROVIDED “AS IS” AND SUPPLIER DISCLAIMS ANY AND ALL OTHER WARRANTIES CONDITIONS OR TERMS WHETHER EXPRESS, IMPLIED OR STATUTORY, WITH RESPECT TO THE PRODUCTS PROVIDED UNDER THIS AGREEMENT OR ANY COLLATERAL CONTRACT INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES CONDITIONS OR TERMS OF SATISFACTORY QUALITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR NON INFRINGEMENT AS WELL AS ANY WARRANTIES ARISING FROM COURSE OF DEALING, USAGE OR TRADE PRACTICE OR OTHER IMPLIED BY LAW WARRANTIES AGAINST HIDDEN DEFECTS.

17.17 Limitation of Liability: SUPPLIER SHALL NOT BE RESPONSIBLE FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL LOSSES, OR FOR PUNITIVE DAMAGES OR FOR LOSS OF PROFITS OR DAMAGES TO BUSINESS OR BUSINESS RELATIONS, WHETHER OR NOT ADVISED IN ADVANCE OF THE POSSIBILITY OF SUCH DAMAGES. THE FOREGOING LIMITATIONS SHALL APPLY NOTWITHSTANDING THE FAILURE OF ANY EXCLUSIVE REMEDIES.

17.18 Remedies:

17.18.1 Problem Resolution: After receiving the notice contemplated by Clause 17.13 , Supplier’s Technical Assistance Center (“TAC”) will notify Vodafone of its designation of one of the following problem resolution methods:

(i) Return to Factory: The allegedly defective hardware, at the field replacement unit (“FRU”) level, must be returned to Supplier in accordance with Supplier’s Return to Factory repair procedures. Repaired or replacement FRU’s will be shipped within [*] of receipt of the defective FRU. There is a no trouble found (“NTF”) charge for FRU’s returned under warranty which are found not to be defective.

(ii) Other: TAC will use best efforts to provide, on a non-priority basis, repair, correction or workaround of the problem by means of telephone support, including patches, corrective software releases or other means reasonably determined by Supplier.

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Under the Return to Factory alternative, if a Product is determined not to be defective or to have a defect due to causes not within Supplier’s reasonable control, Supplier’s then current repair price as listed in the price list will apply. The problem resolution provided pursuant to the support and maintenance agreement entered into pursuant to Clause 17 hereof shall be additional to that provided in this Clause 17.18.1.

17.18.2 Warranty Repair (Return to Factory): If TAC designates Return to Factory as the appropriate problem resolution method, the following provisions apply.

(a) During the [*] of the warranty period, Supplier may at its option provide an advance replacement of a defective FRU. Supplier will repair or replace defective FRU hardware covered under warranty [*] of receipt of the Product. The warranty period for the replaced product shall be [*] or the remainder of the warranty period of the original unit, whichever is greater. Supplier will ship surface freight. Expedited freight is at Vodafone’s expense.

(b) Vodafone, in such event, must return the defective Product to Supplier within [*] of receipt of the replacement product. If the defective Product is not returned within this time period, Supplier will bill Vodafone for the Product at list price, less Vodafone discount, if applicable. The warranty repair procedures provided under the support and maintenance agreement entered into pursuant to Clause 17 hereof shall be additional to that provided in this Clause 17.18.2.

17.18.3 Failure to meet Specification: If during the Warranty Period, Vodafone gives Supplier notice stating that any [*] fails to comply with the Specification therefor at the time of the supply of such [*] to Vodafone (“Defective Solution Element”) and Supplier’s efforts to repair or replace such Solution Element have not resulted in such Solution Element complying with such Specification, Supplier shall, at its option:

(a) [*]

(b) [*]

[*] under this Clause 17.18.3(a) above shall be [*] always that in the event that Vodafone has not exercised such [*] the earlier of [*] prior to the end of [*], Vodafone at it’s sole option may require and Supplier shall [*] of such request. Vodafone may use, or continue to use, [*] for commercial purposes and the [*] shall apply until such time as the Solution Element complies with the Specification.

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17.18.4 To the extent that any Solution Element does not comply to Specification therefor at the time of the supply of such Solution Element to Vodafone then Supplier shall continue to provide support in accordance the terms of the support and maintenance agreement between Supplier and Vodafone, but without prejudice to any other rights of Vodafone with respect to such breach of warranty.

17.18.5 Out-of-Warranty Repair (Hardware): Supplier will either repair or, at its option, replace defective Product hardware not covered under warranty within [*] of its receipt. Repair charges are available from the Repair Facility upon request. The warranty on a serviced Product is [*] from date of shipment of the serviced unit. Out-of-warranty repair charges are based upon the prices in effect at the time of return. The out-of-warranty repair procedures provided under the support and maintenance agreement entered into pursuant to Clause 17 hereof shall be additional to that provided in this Clause 17.18.5.

18. CONFIDENTIALITY

18.1 Each party shall keep confidential and shall not copy, issue or in any way use or disclose to any third party any documents or other information whatsoever obtained or received by it from the other party arising out of or in connection with this Agreement (“Confidential Information”), unless otherwise authorised by the prior written consent of the other party. This provision shall not apply to information (a) disclosed by Vodafone to any other Vodafone Group Company, provided that such company agrees to be bound by these confidentiality terms in writing or (b) manifestly in the public domain or (c) that is required to be disclosed by law, regulation, regulatory authority, legal process, or the rules of any stock market on which the securities of either party are listed or quoted for trading.

18.2 Subject to Clause 18.1(c) above, neither party shall, without the prior written consent of the other, advertise or disclose or allow to be advertised or disclosed to any third party, its entry into this Agreement or any details thereof. Such consent shall not be unreasonably withheld or delayed.

18.3 Notwithstanding the termination of this Agreement for whatever reason, the obligations of confidentiality shall, unless otherwise agreed, continue for a period of [*] from such termination of this Agreement.

18.4 The Solution contains Confidential Information. Vodafone shall not copy the whole or any substantial part of any Confidential Information contained in the Solution except to another Vodafone Group Company which has agreed to be

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bound by these confidentiality terms in writing or otherwise in accordance with this Agreement without the approval of the Supplier. The Supplier shall not unreasonably withhold or delay such approval.

18.5 Vodafone shall not modify, merge or combine the whole or any substantial part of the Solution with any other Computer Programs or documentation except in accordance with this Agreement.

18.6 Vodafone shall not assign, transfer, sell, lease, rent out, charge or otherwise deal in or encumber the Solution, nor use them on behalf of, or make them available for use to, any third party except in accordance with this Agreement.

19. TITLE AND RISK

19.1 Risk of loss or damage to the Solution Elements shall pass to Vodafone [*].

19.2 Title of all Vodafone Property other than the Solution before its been [*] above shall remain with Vodafone at all times. Title to each Solution Element shall pass to Vodafone at the time of [*] of the Project Phase containing such element. The Supplier shall not claim title to any Vodafone Property under any circumstances whatsoever. The Supplier shall not pledge, pawn or mortgage Vodafone Property or in way or create a charge or security over the same. Notwithstanding the above, title to the Licensed Programs shall never pass to Vodafone and shall always remain with Supplier.

19.3 All shipments with destinations outside of the US shall be subject to Supplier’s determination that such shipments are in compliance with all applicable export and import regulations and Vodafone shall provide such documentation and assistance reasonably necessary to ensure US export control compliance.

20. [*]

21. INTELLECTUAL PROPERTY

21.1 Except as described in this Agreement, Supplier does not grant and Vodafone acknowledges that it shall have no right, license or interest in any of the patents, designs, copyrights, trademarks, or trade secrets owned, used or claimed now by Supplier. All applicable rights to such patents, designs, copyrights, trademarks, and trade secrets are and will remain the exclusive property of Supplier. Subject to the rights expressly granted to Vodafone by this Agreement, title to and ownership of the intellectual property rights contained in the Solution Elements or Supplier’s confidential information shall remain Supplier’s sole property.

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21.2 The Supplier shall promptly notify Vodafone of the existence and extent of any Third Party Rights of which the Supplier is or ought to be or becomes aware.

21.3 Subject to the limitations in Clause 21.4 below, Supplier agrees to defend, indemnify and hold Vodafone harmless from and against all final awards of damages based upon claims and judicial or governmental determinations that the Solution as delivered by Supplier under this Agreement infringes or misappropriates any United States or other applicable patent rights, copyrights, trade secrets, or trademarks. Supplier’s obligation hereunder is predicated upon Vodafone’s prompt notification to Supplier of any actual or threatened claim, Vodafone’s full co-operation, at Supplier’s expense, in the defence thereof and the granting to Supplier of the sole control over the defence or settlement of the claim.

21.4 In the event that the use or sale of all or any portion of the Solution is enjoined, or, in Supplier’s judgement, may be enjoined, as a result of a suit based on alleged infringement or misappropriation of the third party intellectual property rights, Supplier agrees to either: (i) procure for Vodafone the right to continue to use the Product, or (ii) replace or modify the infringing or misappropriating Product so that it becomes non-infringing. Upon Supplier’s fulfilment of the alternatives set out in this Clause and Clause 21.1, Supplier shall be relieved of any further obligation or liability to Vodafone as a result of any such infringement or misappropriation.

21.5 Regardless of any other provisions of this Agreement, Clause 21 shall not apply (i) to any designs, specifications or modifications originating with or requested by Vodafone subsequent to the Specification as agreed at the effective date of this Agreement, or (ii) to the combination of any Solution Element with other equipment, software or products not supplied by Supplier if such infringement or misappropriation would not have occurred but for such combination, or (iii) Vodafone’s failure to install an update provided at no additional charge, where the update would have avoided the infringement claim.

21.6 THIS CLAUSE 21 STATES VODAFONE’S SOLE AND EXCLUSIVE REMEDY FOR ANY INFRINGEMENT OR MISAPPROPRIATION OF ANY THIRD PARTY PATENT RIGHTS, COPYRIGHTS, TRADE SECRETS, TRADEMARKS OR ANY OTHER INTELLECTUAL PROPERTY RIGHTS.

22. HEALTH AND SAFETY

22.1 Vodafone shall without any costs to the Supplier provide the Supplier while providing the Solution with a safe and secure workplace and such facilities as the Supplier may reasonably require while on Vodafone’s premises and allow access to such premises at all reasonable times for the purpose of this Agreement.

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22.2 The Supplier agrees to observe the provisions of any health and safety legislation including without limitation the Health and Safety at Work Act 1974 (and all regulations made thereunder pursuant thereto) and any amendments thereto and, while on Vodafone’s premises, the Supplier will conform with Vodafone’s safety and security rules and procedures from time to time in force and notified to the Supplier.

22.3 The Supplier shall without any costs to Vodafone provide Vodafone with a safe and secure workplace and such facilities as Vodafone may reasonably require while on the Supplier’s premises.

23. FORCE MAJEURE

23.1 Notwithstanding any other provisions of this Agreement, neither party shall be liable for any failure to perform its obligations hereunder if such a failure is caused by circumstances beyond its reasonable control. In the event that either party are unable to perform their obligations by reason of [*], the suffering party shall notify the other party of the same immediately.

23.2 Vodafone may at its sole discretion engage a third party to provide EFI&T services for the Solution until such time as the Supplier, upon giving Vodafone reasonable notice in writing, is able once again to perform in accordance with the Agreement.

24. TERMINATION

24.1 This Agreement shall naturally terminate as defined in Clause 2.1 herein. Notwithstanding the aforementioned, this Agreement may be terminated by either party upon giving [*] written notice to the other party.

24.2 Vodafone may at any time terminate this Agreement or terminate a part of this agreement or a specific Purchase Order forthwith by written notice to the Supplier, in the event that any of the following should occur:-

24.2.1 The Supplier fails to provide the Solution to Vodafone’s reasonable satisfaction, where such a failure shall have been notified to the Supplier by Vodafone and the Supplier shall have failed to remedy the same to the reasonable satisfaction of Vodafone within [*] of such a notice.

24.2.2 The Supplier commits any material breach of this Agreement and fails to remedy such breach within [*] of a notice by Vodafone requiring the Supplier so to do.

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24.2.3 If an event of Force Majeure continues for [*] after the event of Force Majeure has arisen as defined in Clause 23.

24.3 Either party may, without prejudice to any other right or remedy of either party, terminate this Agreement by written notice to the other party to take immediate effect if the other party ceases or threatens to cease to carry on business or suspends or threatens to suspend all or substantially all of its operations (other than temporarily by reason of strike) or suspends payments of its debts or is unable to pay its debts (within the meaning of section 123 of the Insolvency Act 1986 where applicable) or suffers any act of insolvency or bankruptcy.

24.4 In the event of lawful termination, no compensation or remuneration for loss of revenue or otherwise shall be or become due to the other party with the exception of moneys outstanding for delivered Solution Elements.

24.5 Supplier may terminate this Agreement if Vodafone commits any material breach of this Agreement and fails to remedy such breach within [*] of a notice by Supplier requiring Vodafone so to do.

25. LIABILITIES AND INDEMNITIES

25.1 Each party agrees to indemnify and hold harmless the other party (including their directors, officers, employees, agents, representatives, affiliates, and subcontractors) from and against any direct claims for damages, asserted by any person or entity due to personal injury (including death) or tangible property damage to the extent resulting from any negligent act or omission of such party; provided, however, that such party shall not be liable for that portion of liabilities which are caused by the negligence of the other party.

25.2 EXCEPT AS PROVIDED HEREIN, SUPPLIER’S MAXIMUM LIABILITY UNDER THIS AGREEMENT ARISING OUT OF THE MANUFACTURE, SALE, SUPPLY, SERVICE OR SUPPORT OF PRODUCTS OR THEIR USE, WHETHER BASED ON WARRANTY, CONTRACT, TORT (INCLUDING NEGLIGENCE), PRODUCT LIABILITY OR OTHERWISE, SHALL NOT EXCEED THE LESSER OF [*]. IN NO EVENT SHALL SUPPLIER BE LIABLE FOR INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL, EXEMPLARY PUNITIVE DAMAGES OR LOST PROFITS, WHETHER FORESEEABLE OR UNFORESEEABLE, OF ANY KIND WHATSOEVER (INCLUDING, WITHOUT LIMITATION, LOST PROFITS, LOSS OF GOODWILL, LOSS OR DAMAGED DATA OR SOFTWARE, LOSS OF USE OF THE PRODUCTS, DOWNTIME OR COSTS OF SUBSTITUTE PRODUCTS OR EQUIPMENT) ARISING FROM SUPPLIER’S SALE AND DELIVERY OF THE PRODUCTS OR ANY OTHER ACT OF SUPPLIER IN

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CONNECTION WITH THIS AGREEMENT, EVEN IF SUPPLIER HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. NO LIMITATION AS TO DAMAGES FOR PERSONAL INJURY IS HEREBY INTENDED.

26. INSURANCE

Supplier, at its sole cost and expense, shall carry and maintain insurance with an “A” rated company or companies insuring the Supplier, its agents, employees or associates as follows:

        [*]

Supplier shall provide Vodafone with a Certificate of Insurance stating that the foregoing insurance policies are in full force and effect. Supplier shall give Vodafone at least [*] written notice before the policy or policies are cancelled or materially altered.

27. SUBCONTRACTING

27.1 The Supplier shall not be entitled to subcontract any part of the Solution to any third party except with the prior written consent of Vodafone and Vodafone’s approval of the identity of the subcontractor. Such consent shall not be unreasonably withheld. Notwithstanding the foregoing, the Supplier shall nevertheless be responsible to Vodafone for the proper rendering of the Solution as if the Supplier itself had performed it.

28. ASSIGNMENT

28.1 Neither party shall be entitled to assign, subcontract transfer or dispose of any of their rights or obligations under this Agreement without the prior written consent of the other party, except (1) that Vodafone may assign this Agreement other than Clause 20 hereof in whole or part to any Vodafone Group Company provided such party agrees in writing to be bound by this Agreement as if it were Vodafone; and (2) Supplier may assign this Agreement to a third party which acquires all or substantially all of Supplier’s stock or assets subject to Vodafone’s written consent which shall not be unreasonably withheld unless Vodafone has reasonable grounds for believing that such third party will not perform Supplier’s obligations under this Agreement

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29. NOTICES

29.1 All notices required to be given hereunder shall be deemed sufficiently given if sent by facsimile or registered post to the address set out below, or to such other address as may be designated by either party from time to time in writing to the other party:

If to Vodafone:

Commercial Manager

Supply Chain Management

Vodafone Limited

The Courtyard

2 – 4 London Road

Newbury

Berkshire

RG14 1JX

If to the Supplier:

Legal Department

Sycamore Networks, Inc.

10 Elizabeth Drive

Chelmsford, MA 01824 USA

30. AGENCY OR PARTNERSHIP

30.1 Nothing in this Agreement shall constitute or be deemed to constitute a partnership between the parties hereto or constitute either party as agent for the other for any purpose whatsoever and neither party shall have the authority or power to bind the other party or to contract in the name of or create a liability of the other in any way or for any purpose.

31. WAIVER

31.1 No waiver or default by either party of any term or condition of this Agreement shall be construed to be a waiver of that provision or any other provision herein.

32. ENFORCEMENT

32.1 No relaxation, forbearance or delay by either party in enforcing any Terms and Conditions herein shall prejudice, affect or restrict the rights of that party hereunder, nor shall any waiver by either party of any breach operate as a waiver of any subsequent or continuing breach thereof.

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33. HEADINGS

33.1 The headings of the Terms and Conditions are for convenience only and shall not affect the construction thereof.

34. SEVERABILITY

34.1 If any provision of these terms is held by any competent authority to be invalid or unenforceable in whole or in part the validity of all other provisions of these Terms and Conditions and the remainder of the provision in question shall not be affected thereby.

35. AMENDMENTS

35.1 This Agreement shall not be varied or amended otherwise than by an amendment in writing signed on behalf of both parties by their duly authorised representatives.

36. SURVIVAL

36.1 Except as otherwise provided herein, the following Clauses shall survive termination of this Agreement:

1, 4, 5, 6, 7, 8, 12, 13, 15.8.5, 17, 18, 19, 20, 21, 25, 28, 35, 36

37. GOVERNING LAW

37.1 This Agreement shall be construed in accordance with and governed by the laws of England.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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Signed for and on behalf of: Vodafone Limited	Signed for and on behalf of: Sycamore Networks, Inc.
By:	By:
Name:	Name:
Title:	Title:
Witness for and on Behalf of Vodafone Limited	Witness for and on behalf of: Sycamore Networks, Inc.
By:	By:
Name:	Name:
Title:	Title:

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Appendix A

PRICE

[*]

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Appendix B

SPECIFICATION

[*]

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Appendix C

DESIGNATED SYSTEMS

To be agreed by Parties

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Appendix D

PROJECT PHASES

[*]

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Appendix E

[*]

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Appendix F

DESCRIPTION OF SUPPORT SERVICES

[*]

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Appendix G

HARDWARE EQUIPMENT

[*]

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Appendix H

LICENSED PROGRAMS

[*]

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Appendix I

QUALITY ASSURANCE

[*]

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THIS FIRST AMENDMENT AGREEMENT is made this day the 30th of June 2001,

between

Vodafone Limited (registered company number 01471587), whose registered office is at The Courtyard, 2 – 4 London Road, Newbury, Berkshire RG14 1JX. England (‘Vodafone’) of the one part

and

Sycamore Networks, Inc., a Delaware corporation, whose principal place of business is at 150 Apollo Drive, Chelmsford, MA 01824, USA (‘Supplier’) of the other part.

WHEREAS:

Vodafone and Supplier have entered into an Agreement for the Provision of Hardware, Software, Training, Support and Maintenance and Project Management Services to Supplier, dated November 16, 2000 (the “Purchase Agreement”) and wish to amend the Purchase Agreement as set forth below.

NOW IT IS HEREBY AGREED AS FOLLOWS:-

1. Section 15.8.2 of the Purchase Agreement shall be deleted in its entirety and replaced with the following:

“15.8.2 The Supplier shall send invoices to Vodafone (i) in respect of the Solution for Project Phase 1, upon [*]. All such invoices shall be sent to the following address:

Vodafone Limited

The Courtyard

2 – 4 London Road

Newbury

Berkshire

RG14 1JX”

For the attention of Accounts Payable

2. Section 15.8.3 of the Purchase Agreement shall be deleted in its entirety and replaced with the following:

“15.8.3 Each invoice shall quote the following information:

(1) the Agreement number,

(2) the Project Phase,

(3) the description of the Solution Element provided in the Project Phase,

(4) [*]

(5) if the invoice is not in respect of [*], an Airway Bill and shipping list

(6) the unit and total price [*] for the Solution Element.”

3. Section 15.8.5 of the Purchase Agreement shall be deleted in its entirety and replaced with the following:

“15.8.5 In the case of an invoice in respect of [*].”

4. Section 19.2 of the Purchase Agreement shall be deleted in its entirety and replaced with the following:

“19.2 Title of all Vodafone Property, [*].”

5. Section 29.1 of the Purchase Agreement shall be deleted in its entirety and replaced with the following:

“29.1 All notices required to be given hereunder shall be deemed sufficiently given if sent by facsimile or registered post to the address set out below, or to such other address as may be designated by either party from time to time in writing to the other party:

If to Vodafone:

Commercial Manager

Supply Chain Management

Vodafone Limited

The Courtyard

2 – 4 London Road

Newbury

Berkshire

RG14 1JX

Facsimile number: +44 (0)1635-673578

If to the Supplier:

Legal Department

Sycamore Networks, Inc.

150 Apollo Drive

Chelmsford, MA 01824 USA

Facsimile number: (978) 244-1097

2

6. This First Amendment Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed an original, but all such counterparts shall constitute one and the same instrument.

7. This First Amendment Agreement shall be construed in accordance with and governed by the laws of England.

8. The Purchase Agreement, as amended hereby, and each Appendix thereto shall remain in full force and effect and each is hereby ratified and confirmed. From the date hereof, each reference in the Purchase Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or any other word or words of similar import shall mean and be a reference to the Purchase Agreement as amended hereby, and each reference in any Appendix to the Purchase Agreement or any word or words of similar import shall mean and be a reference to the Purchase Agreement as amended hereby.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

3

Signed for and on behalf of: Vodafone Limited	Signed for and on behalf of: Sycamore Networks, Inc.
By:	By:
Name:	Name:
Title:	Title:
Witness for and on Behalf of Vodafone Limited	Witness for and on behalf of: Sycamore Networks, Inc.
By:	By:
Name:	Name:
Title:	Title:

4

THIS SECOND AMENDMENT AGREEMENT is made this 26th of October 2001,

between

Vodafone Limited (registered company number 01471587), whose registered office is at The Courtyard, 2 – 4 London Road, Newbury, Berkshire RG14 1JX. England (‘Vodafone’) of the one part

and

Sycamore Networks, Inc., a Delaware corporation, whose principal place of business is at 150 Apollo Drive, Chelmsford, MA 01824, USA (‘Supplier’) of the other part.

WHEREAS:

Vodafone and Supplier have entered into an Agreement for the Provision of Hardware, Software, Training, Support and Maintenance and Project Management Services to Supplier, dated November 16, 2000, as modified by the First Amendment Agreement, dated June 30, 2001 (the “Purchase Agreement”) and wish to amend the Purchase Agreement as set forth below.

NOW IT IS HEREBY AGREED AS FOLLOWS:

1. Section 11 of the Purchase Agreement is modified to add the following Section 11.14:

“Notwithstanding anything in this Section 11 to the contrary, [*].”

2. Section 15.8.2 of the Purchase Agreement is modified to read as follows:

“The Supplier shall send invoices to Vodafone [*]. All such invoices shall be sent to the following address:

Vodafone Limited

The Courtyard

2 – 4 London Road

Newbury

Berkshire

RG14 1JX”

3. Section 15.8.5 of the Purchase Agreement is modified to read as follows:

“In the case of an invoice in respect of [*].”

3. This Second Amendment Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed an original, but all such counterparts shall constitute one and the same instrument.

4. This Second Amendment Agreement shall be construed in accordance with and governed by the laws of England.

5. The Purchase Agreement, as amended hereby, and each Appendix thereto shall remain in full force and effect and each is hereby ratified and confirmed. From the date hereof, each reference in the Purchase Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or any other word or words of similar import shall mean and be a reference to the Purchase Agreement as amended hereby, and each reference in any Appendix to the Purchase Agreement or any word or words of similar import shall mean and be a reference to the Purchase Agreement as amended hereby.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

2

Signed for and on behalf of: Vodafone Limited	Signed for and on behalf of: Sycamore Networks, Inc.
By:	By:
Name:	Name:
Title:	Title:
Witness for and on Behalf of Vodafone Limited	Witness for and on behalf of: Sycamore Networks, Inc.
By:	By:
Name:	Name:
Title:	Title:

3

THIS THIRD AMENDMENT AGREEMENT is made this 1 day of December 2001,

between

Vodafone Limited (registered company number 01471587), whose registered office is at The Courtyard, 2 – 4 London Road, Newbury, Berkshire RG14 1JX. England (‘Vodafone’) of the one part

and

Sycamore Networks, Inc., a Delaware corporation, whose principal place of business is at 150 Apollo Drive, Chelmsford, MA 01824, USA (‘Supplier’) of the other part.

WHEREAS:

Vodafone and Supplier have entered into an Agreement for the Provision of Hardware, Software, Training, Support and Maintenance and Project Management Services to Vodafone, dated November 16, 2000, as modified by the First Amendment Agreement, dated June 30, 2001 and the Second Amendment Agreement, dated October     , 2001 (the “Purchase Agreement”), and wish to amend the Purchase Agreement as set forth below.

NOW IT IS HEREBY AGREED AS FOLLOWS:

1. The parties expressly agree that the provisions of this Third Amendment Agreement shall apply to [*].

2. The parties agree that the (a) Equipment and Licensed Programs delivered by Supplier in connection with each of such [*].

3. Sections 15.8.2 through 15.8.5 (Invoices) of the Purchase Agreement are modified to read as follows:

“15.8.2 The Supplier shall send invoices to Vodafone for [*] to the following address:

Vodafone Limited

The Courtyard

2 – 4 London Road

Newbury

Berkshire

RG14 1JX”.

“15.8.3 Each invoice shall quote the following information:

the Agreement number

the Project Phase

the description of the Solution Element provided in the Project Phase

the unit and total price [*] for the Solution Element”.

“15.8.4 Each separate invoice submitted by the Supplier shall constitute a separate entitlement to payment from Vodafone”.

“15.8.5 Vodafone shall pay [*]. All such payments shall be made via wire transfer to Sycamore’s account, as follows:

                                    [*]

4. This Third Amendment Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed an original, but all such counterparts shall constitute one and the same instrument.

5. This Third Amendment Agreement shall be construed in accordance with and governed by the laws of England.

6. The Purchase Agreement, as amended hereby, and each Appendix thereto shall remain in full force and effect and each is hereby ratified and confirmed. From the date hereof, each reference in the Purchase Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or any other word or words of similar import shall mean and be a reference to the Purchase Agreement as amended hereby, and each reference in any Appendix to the Purchase Agreement or any word or words of similar import shall mean and be a reference to the Purchase Agreement as amended hereby.

Signed for and on behalf of: Vodafone Limited	Signed for and on behalf of: Sycamore Networks, Inc.
By:	By:
Name:	Name:
Title:	Title:
Witness for and on Behalf of Vodafone Limited	Witness for and on behalf of: Sycamore Networks, Inc.
By:	By:
Name:	Name:
Title:	Title:

2

Attachment 1

[*]

3

THIS FOURTH AMENDMENT AGREEMENT is made this 28^th day of January 2003,

between

Vodafone Limited (registered company number 01471587), whose registered office is at The Courtyard, 2-4 London Road, Newbury, Berkshire RG14 1JX. England (‘Vodafone’) of the one part

and

Sycamore Networks Inc., a Delaware corporation, whose principal place of business is at 150 Apollo Drive, Chelmsford, MA 01824, USA (‘Supplier’) of the other part

WHEREAS

Vodafone and Supplier have entered into an Agreement for the Provision of Hardware, Software, Training, Support and Maintenance and Project Management Services to Vodafone, dated November 16^th, 2000, as modified by the First Amendment Agreement, dated June 30^th, 2001 and the Second Amendment Agreement, dated October 24^th, 2001 and the Third Amendment Agreement, dated December 1^st, 2001 (the ‘Purchase Agreement’), and wish to amend the Purchase Agreement as set forth below.

NOW IT IS HEREBY AGREED AS FOLLOWS:

1 The first sentence of Section 15.2.1 (Purchase Order Procedure) shall be deleted in its entirety and replaced with the following:

“Delivery of Equipment and Licenced Programs and provision of EFI&T services shall only be made against an order by Vodafone on Vodafone’s standard Purchase Order form that is made by fax or electronic data interchange (“EDI”).”

Signed for and on behalf of Vodafone Limited	Signed for and on behalf of Sycamore Networks, Inc.
By:	By:
Name:	Name:
Print name:	Print name:
Title:	Title:

Witness for and on behalf of Vodafone Limited	Witness for and on behalf of Sycamore Networks, Inc.
By:	By:
Name:	Name:
Print name:	Print name:
Title:	Title:

Private and Confidential Agreement Number 1567

THIS FIFTH AMENDMENT AGREEMENT is made this day the 21^st of December 2004,

BETWEEN

Vodafone Limited (registered company number 01471587), whose registered office is at Vodafone House, The Connection, , Newbury, Berkshire RG14 2FN. England (‘Vodafone’) of the one part

and

Sycamore Networks, Inc., a Delaware corporation, whose principal place of business is at 220 Mill Road, Chelmsford, MA 01824, USA (‘Supplier’) of the other part.

WHEREAS:

Vodafone and Supplier have entered into an Agreement for the Provision of Hardware, Software, Training, Support and Maintenance and Project Management Services to Vodafone dated November 16, 2000, as modified by the First Amendment Agreement, dated June 30^th, 2001, and the Second Amendment Agreement, dated October 24^th, 2001, and the Third Amendment Agreement, dated December 1^st, 2001 (the “Purchase Agreement”), and the Fourth Amendment Agreement, dated January 28^th, 2003 and wish to amend the Purchase Agreement as set forth below.

NOW IT IS HEREBY AGREED AS FOLLOWS:

1. Capitalized terms used herein and not otherwise defined herein shall have such meaning as set forth in the Purchase Agreement.

2. Section 1. Definitions

The definitions of “Licensed Programs” and “Equipment” are deleted in their entirety and replaced with the following:

“Licensed Programs” means all of the Computer Programs identified in Supplier’s then current international price list.

“Equipment” means all of the hardware equipment detailed in Supplier’s then current international price list.

3. The parties expressly agree that the provisions of this Fifth Amendment Agreement shall apply to all Vodafone Purchase Orders for Licensed Programs and Equipment accepted by Supplier after the effective date of this Fifth Amendment Agreement.

Page 1 of 4

Private and Confidential Agreement Number 1567

4. Section 14.1 Price

This section is deleted in its entirety and replaced with the following:

The Price for each Solution Element shall be as detailed within Supplier’s then current international price list denominated in [*].

5. Sections 15.8.1 through 15.8.5 Invoices

Sections 15.8.1 through 15.8.5 (Invoices) of the Purchase Agreement are modified to read as follows:

15.8.1 Purchases of Licensed Programs and Equipment from Supplier shall be invoiced by Supplier and paid by Vodafone in [*] unless otherwise agreed in writing by the parties.

15.8.2 The Supplier shall send invoices to Vodafone for delivery of the applicable Equipment and Licensed Programs to the following address:

Accounts Payable,

Vodafone Limited,

P.O. Box 5577,

Newbury,

Berkshire,

RG14 2DD.

15.8.3 Each invoice shall quote the following information:

the Purchase Order Number

the Agreement number

the Project Phase (if applicable)

the description of the Solution Element

the unit and total price in United States Dollars for the Solution Element.

15.8.4 Each separate invoice submitted by the Supplier shall constitute a separate entitlement to payment from Vodafone.

15.8.5 [*]. All such payments shall be made via wire transfer to Sycamore’s account, as follows:

                                [*]

Page 2 of 4

Private and Confidential Agreement Number 1567

6. Section 29.1 of the Purchase Agreement shall be deleted in its entirety and replaced with the following:

29.1 All notices required to be given hereunder shall be deemed sufficiently given if sent by facsimile or registered post to the address set out below, or to such other address as may be designated by either party from time to time in writing to the other party:

If to Vodafone:

The Head of Supply Chain Management

Supply Chain Management

Vodafone Limited

Faraday House

The Connection

Newbury

Berkshire

RG14 2FN

Facsimile Number: +44 (0) 1635-686488

If to the Supplier:

Legal Department

Sycamore Networks, Inc.

220 Mill Road

Chelmsford, MA 01824 USA

Facsimile Number: (978) 244-1097

7. This Fifth Amendment Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed an original, but all such counterparts shall constitute one and the same instrument.

8. This Fifth Amendment Agreement shall be construed in accordance with and governed by the laws of England.

9. The Purchase Agreement, as amended hereby, and each Appendix thereto shall remain in full force and effect and each is hereby ratified and confirmed. From the date hereof, each reference in the Purchase Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or any other word or words of similar import shall mean and be a reference to the Purchase Agreement as amended hereby, and each reference in any Appendix to the Purchase Agreement or any word or words of similar import shall mean and be a reference to the Purchase Agreement as amended hereby.

Page 3 of 4

Private and Confidential Agreement Number 1567

Signed for and on behalf of: Vodafone Limited	Signed for and on behalf of: Sycamore Networks, Inc.
By:	By:
Name:	Name:
Title:	Title:
Witness for and on Behalf of Vodafone Limited	Witness for and on behalf of: Sycamore Networks, Inc.
By:	By:
Name:	Name:
Title:	Title:

Page 4 of 4

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: February 25, 2005

/s/ DANIEL E. SMITH

Daniel E. Smith

President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2 – CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Richard J. Gaynor, 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: February 25, 2005

/s/ RICHARD J. GAYNOR

Richard J. Gaynor

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 January 29, 2005 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

February 25, 2005

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 January 29, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard J. Gaynor, 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/ Richard J. Gaynor

Richard J. Gaynor

Chief Financial Officer, Vice President,

Finance and Administration, Secretary and Treasurer

February 25, 2005