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SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant x
Filed by a Party other than the Registrant ¨
Check the appropriate box:
| ¨ | Preliminary Proxy Statement |
| ¨ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
| x | Definitive Proxy Statement |
| ¨ | Definitive Additional Materials |
| ¨ | Soliciting Material Under Rule 14a-12 |
SYCAMORE NETWORKS, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
| x | No fee required. |
| ¨ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
| 1) | Title of each class of securities to which transaction applies: |
| 2) | Aggregate number of securities to which transaction applies: |
| 3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
| 4) | Proposed maximum aggregate value of transaction: |
| 5) | Total fee paid: |
| ¨ | Fee paid previously with preliminary materials. |
| ¨ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. |
| 1) | Amount previously paid: |
| 2) | Form, Schedule or Registration Statement No.: |
| 3) | Filing Party: |
| 4) | Date Filed: |
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SYCAMORE NETWORKS, INC.
220 Mill Road
Chelmsford, Massachusetts 01824
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 18, 2003
To the Stockholders of Sycamore Networks, Inc.:
The Annual Meeting of Stockholders of Sycamore Networks, Inc., a Delaware corporation (the “Corporation”), will be held on Thursday, December 18, 2003 (the “Annual Meeting”) at 9:00 A.M., local time, at the Radisson Hotel, 10 Independence Drive, Chelmsford, Massachusetts 01824 to consider and act upon the following matters:
| 1. | To elect two (2) members of the Board of Directors to serve for three-year terms as Class I Directors and until their respective successors are elected and qualified. |
| 2. | To ratify the selection of PricewaterhouseCoopers LLP as auditors for the fiscal year ending July 31, 2004. |
| 3. | To transact such other business as may properly come before the meeting or any adjournments thereof. |
Stockholders entitled to notice of and to vote at the meeting shall be determined as of October 22, 2003, the record date fixed by the Board of Directors for such purpose.
By Order of the Board of Directors,
Frances M. Jewels
Secretary
Mail Date: November 12, 2003
In order to assure your representation at the Annual Meeting, you are requested to complete, sign, and date the enclosed proxy as promptly as possible and return it in the enclosed envelope (to which no postage need be affixed if mailed in the United States). Alternative voting methods are also available via the Internet or by telephone. Please reference the enclosed proxy card or voting card for additional information.
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SYCAMORE NETWORKS, INC.
220 Mill Road
Chelmsford, Massachusetts 01824
PROXY STATEMENT
November 12, 2003
This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Sycamore Networks, Inc. (the “Corporation”) for use at the Annual Meeting of Stockholders to be held on Thursday, December 18, 2003 (the “Annual Meeting”) at 9:00 A.M., local time, at the Radisson Hotel, 10 Independence Drive, Chelmsford, Massachusetts 01824, and any adjournments thereof. This Proxy Statement and the form of proxy were first mailed to stockholders on or about November 12, 2003.
Only stockholders of record as of October 22, 2003 (the “Record Date”) will be entitled to vote at the Annual Meeting and any adjournments thereof. As of that date, 272,181,135 shares of common stock, $.001 par value (the “Common Stock”), of the Corporation were outstanding and eligible to be voted. The holders of Common Stock are entitled to one vote per share on any proposal presented at the Annual Meeting. Stockholders may vote in person or by proxy. Execution of a proxy will not in any way affect a stockholder’s right to attend the Annual Meeting and vote in person. Any proxy may be revoked by a stockholder at any time before it is exercised by delivery of a written revocation or a later executed proxy to the Secretary of the Corporation or by attending the meeting and voting in person.
VOTING SECURITIES AND VOTES REQUIRED
The representation in person or by proxy of at least a majority of the outstanding shares of Common Stock entitled to vote at the Annual Meeting is necessary to constitute a quorum for the transaction of business. Each share of Common Stock outstanding on the Record Date is entitled to one vote. For purposes of determining the presence of a quorum, abstentions and broker non-votes will be counted as present at the Annual Meeting.
In the election of directors, the nominees receiving the highest number of affirmative votes of the shares present or represented and entitled to vote at the Annual Meeting shall be elected as directors. Abstentions and broker non-votes will have no effect on the voting outcome with respect to the election of directors.
The affirmative vote of the holders of a majority of the shares of Common Stock present or represented and voting on the matter at the Annual Meeting is necessary to ratify the selection of PricewaterhouseCoopers LLP as auditors for the fiscal year ending July 31, 2004. Abstentions and broker non-votes will have no effect upon the outcome of voting with respect to the ratification of the selection of auditors.
The persons named as proxies are officers of the Corporation.All properly executed proxies returned in time to be counted at the Annual Meeting will be voted in accordance with the instructions contained therein, and if no choice is specified, such proxies will be voted in favor of the matters set forth in the accompanying Notice of Annual Meeting.
The Board of Directors of the Corporation knows of no other matters to be presented at the Annual Meeting. If any other matter should be presented at the Annual Meeting upon which a vote properly may be taken, shares represented by all proxies received by the Board of Directors will be voted with respect thereto in accordance with the judgment of the persons named as proxies.
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Voting Shares Registered Directly in the Name of the Stockholder
Stockholders with shares registered directly in their name in the Corporation’s stock records maintained by the Corporation’s transfer agent, EquiServe Trust Company, N.A., may vote their shares (1) through the Internet, (2) by making a toll-free telephone call from the U.S. and Canada to EquiServe or (3) by mailing their signed proxy card. Specific voting instructions are set forth on the enclosed proxy card. Votes submitted through the Internet or by telephone through EquiServe must be received by 5:00 P.M. on December 17, 2003.
Voting Shares Registered in the Name of a Brokerage Firm or Bank
Stockholders with shares registered in the name of a brokerage firm or bank participating in the ADP Investor Communication Services program may vote their shares (1) through the Internet, (2) by telephone in accordance with the instructions set forth on the voting card or (3) by mailing their signed voting card. Votes submitted through the Internet or by telephone through the ADP program must be received by ADP Investor Communication Services by 5:00 P.M. on December 17, 2003.
Revocation of Proxies Previously Submitted
To revoke a proxy previously submitted electronically through the Internet or by telephone, a stockholder may simply vote again at a later date, using the same procedures, in which case the later submitted vote will be recorded and the earlier vote revoked. To revoke a proxy previously submitted by mail, a stockholder may notify the Secretary of the Corporation in writing that the proxy has been revoked, or by voting in person at the Annual Meeting.
Delivery of Proxy Materials and Annual Report to Households
The rules promulgated by the Securities and Exchange Commission (the “Commission”) permit companies, brokers, banks or other intermediaries to deliver a single copy of an annual report and proxy statement to households at which two or more stockholders reside (“Householding”). Stockholders sharing an address who have been previously notified by their broker, bank or other intermediary and have consented to Householding, either affirmatively or implicitly by not objecting to Householding, will receive only one copy of the Corporation’s annual report and this Proxy Statement. A stockholder who wishes to participate in Householding in the future must contact his or her broker, bank or other intermediary directly to make such request. Alternatively, a stockholder who wishes to revoke his or her consent to Householding and receive separate annual reports and proxy statements for each stockholder sharing the same address must contact his or her broker, bank or other intermediary to revoke such consent. Stockholders may also obtain a separate annual report and/or proxy statement without charge by sending a written request to Sycamore Networks, Inc., 220 Mill Road, Chelmsford, Massachusetts 01824, Attention: Investor Relations, or by calling the Corporation at (978) 250-2900. The Corporation will promptly deliver an annual report and/or proxy statement upon request. Householding does not apply to stockholders with shares registered directly in their name.
The cost of soliciting proxies will be borne by the Corporation. Proxies may be solicited by certain of the Corporation’s directors, officers and regular employees, without additional compensation, in person or by telephone or facsimile. In addition, the Corporation has retained Georgeson Shareholder to act as proxy solicitor in conjunction with the Annual Meeting. The Corporation has agreed to pay Georgeson Shareholder a fee of $7,000 plus reimbursement of reasonable out-of-pocket expenses. The Corporation may also reimburse brokerage firms and other persons representing beneficial owners of shares for their expenses in forwarding solicitation materials to such beneficial owners.
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ELECTION OF DIRECTORS
In accordance with the Corporation’s Amended and Restated Certificate of Incorporation, the Corporation’s Board of Directors is divided into three classes, each of whose members serve for a staggered three-year term. Upon the expiration of the term of a class of directors, directors in such class will be elected for three-year terms at the annual meeting of stockholders in the year in which such term expires.
Two Class I Directors will be elected at the Annual Meeting for three-year terms. The Class I nominees, Messrs. Barrows and Gerdelman, are currently serving as directors of the Corporation.
Shares represented by all proxies received by the Board of Directors and not marked to withhold authority to vote for Messrs. Barrows and Gerdelman will be voted FOR the election of both nominees. Messrs. Barrows and Gerdelman will be elected to hold office until the Annual Meeting of Stockholders to be held in 2006 and until their respective successors are duly elected and qualified. Both nominees have indicated their willingness to serve, if elected. However, if any of the nominees should be unable or unwilling to serve, the proxies will be voted for a substitute nominee designated by the Board of Directors or for fixing the number of directors at a lesser number.
The following table sets forth for each nominee to be elected at the Annual Meeting and for each director whose term of office will extend beyond the Annual Meeting, the year each such nominee or director was first elected a director, the age of each nominee or director, the positions currently held by each nominee or director with the Corporation, the year each nominee’s or director’s current term will expire and the class of director of each nominee or director.
Nominee or Director’s Name and Year Nominee or Director First Became a Director | Age | Position(s) Held | Year Current Term Will Expire | Class of Director | ||||
Gururaj Deshpande (1998) | 52 | Chairman of the Board of Directors | 2004 | II | ||||
Daniel E. Smith (1998) | 54 | President, Chief Executive Officer and Director | 2005 | III | ||||
Timothy A. Barrows (1998) | 46 | Director | 2003 | I | ||||
Paul W. Chisholm (2002) | 54 | Director | 2005 | III | ||||
Paul J. Ferri (1998) | 64 | Director | 2004 | II | ||||
John W. Gerdelman (1999) | 51 | Director | 2003 | I |
Business Experience of Nominees
The Nominees to serve for three-year terms as Class I Directors and until their respective successors are elected and qualified are:
Timothy A. Barrowshas served as a director since February 1998. Mr. Barrows has been a General Partner of Matrix Partners, a venture capital firm, since September 1985.
John W. Gerdelmanhas served as a director since September 1999. Mr. Gerdelman has been the President and Chief Executive Officer of AboveNet, Inc., a provider of digital communications infrastructure, since April 2002. From January 2000 through March 2002, Mr. Gerdelman was a Managing Member of mortonsgroup, LLC, a partnership investing in early stage companies. From April 1999 through December 1999, Mr. Gerdelman was President and Chief Executive Officer of USA.Net Inc., a web-based electronic messaging services provider. Mr. Gerdelman was employed by MCI Telecommunications Corporation, the long-distance telecommunications subsidiary of MCI Communications Corporation, as President of the Network and Information Technology
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Division from September 1994 to April 1999 and Senior Vice President of Sales and Service Operations from June 1992 to September 1994. Mr. Gerdelman also serves on the board of directors of McDATA Corporation and APAC Customer Services, Inc.
Business Experience of Other Directors
Gururaj Deshpandehas served as Chairman of the Corporation’s Board of Directors since its inception in February 1998. Mr. Deshpande served as the Corporation’s Treasurer and Secretary from February 1998 to June 1999 and as the Corporation’s President from February 1998 to October 1998. Before co-founding the Corporation, Mr. Deshpande co-founded Cascade Communications Corp., a provider of wide area network switches. From October 1990 to April 1992, Mr. Deshpande served as President of Cascade and from April 1992 to June 1997, he served as Cascade’s Executive Vice President of Marketing and Customer Service. Mr. Deshpande was a member of the board of directors of Cascade since its inception and was chairman of the board of directors of Cascade from 1996 to 1997.
Daniel E. Smith has served as the Corporation’s President, Chief Executive Officer and as a member of the Corporation’s Board of Directors since October 1998. From June 1997 to July 1998, Mr. Smith was Executive Vice President and General Manager of the Core Switching Division of Ascend Communications, Inc., a provider of wide area network switches and access data networking equipment. Mr. Smith was also a member of the board of directors of Ascend Communications, Inc. during that time. From April 1992 to June 1997, Mr. Smith served as President and Chief Executive Officer and a member of the board of directors of Cascade Communications Corp., a provider of wide area network switches.
Paul W. Chisholm has served as a director since October 2002. Mr. Chisholm has been Chairman and Chief Executive Officer of mindSHIFT Technologies, a provider of managed information technology infrastructure services, since September 2003. Since March 2001, Mr. Chisholm has been President of Paul Chisholm Inc., providing business and telecommunications consulting services to venture capital firms. From December 1996 to January 2001, Mr. Chisholm was President and Chief Executive Officer and a member of the board of directors of COLT Telecom Group plc, a European-based provider of business communication services. From February 1995 to December 1996, Mr. Chisholm served as President of COLT and from July 1992 to February 1995 he served as Managing Director. Mr. Chisholm continues to serve as a member of the board of directors of COLT.
Paul J. Ferrihas served as a director since February 1998. Mr. Ferri has been a General Partner of Matrix Partners, a venture capital firm, since February 1982. Mr. Ferri also serves on the board of directors of Sonus Networks, Inc.
There are no family relationships among any of the directors or executive officers of the Corporation. None of the corporations or other organizations referred to above with which a director has been employed or otherwise associated is a parent, subsidiary or other affiliate of the Corporation.
Board of Director Meetings and Committees
During fiscal year 2003, the Board of Directors held fourteen meetings. No director serving on the Board of Directors in fiscal 2003 attended fewer than 75% of such meetings of the Board of Directors and the Committees on which he serves. The Board of Directors has established a Compensation Committee, Nominating Committee, Audit Committee and Special Litigation Committee.
Compensation Committee
The Compensation Committee consists of Messrs. Barrows and Ferri, each of whom is independent, as defined by the applicable listing requirements of the Nasdaq Stock Market, Inc. (“Nasdaq”). The Compensation Committee is responsible for establishing and monitoring policies governing compensation of executive officers.
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The Compensation Committee is responsible for reviewing the performance and compensation levels for executive officers, establishing salary and bonus levels for these individuals and making recommendations to the Board of Directors for restricted stock awards or option grants for these individuals under the Corporation’s stock option plans. The objectives of the Compensation Committee are to correlate executive officer compensation with the Corporation’s business objectives and financial performance, and to enable the Corporation to attract, retain and reward executive officers who contribute to the long-term success of the Corporation. The Compensation Committee will seek to reward executives in a manner consistent with the Corporation’s annual and long-term performance goals and to recognize individual initiative and achievement among executive officers. During fiscal 2003, the Compensation Committee held three meetings. For additional information concerning the Compensation Committee, see “Compensation Committee Report on Executive Compensation.”
Nominating Committee
The Nominating Committee was established in February 2003 and consists of Messrs. Chisholm and Gerdelman, each of whom is independent, as defined by the applicable Nasdaq listing requirements. The Nominating Committee selects individuals qualified to serve as directors of the Corporation, recommends to the Board individuals to serve on committees of the Board, makes recommendations to the Board regarding nominees proposed by stockholders, and advises the Board with respect to Board and committee composition. To recommend a prospective nominee for director for the Nominating Committee’s consideration, stockholders should submit the candidate’s name and qualifications to the Corporation’s Secretary in writing to the following address: Sycamore Networks, Inc., Attn: Secretary, 220 Mill Road, Chelmsford, Massachusetts 01824. During fiscal 2003, the Nominating Committee did not hold any meetings. The first meeting of the Nominating Committee occurred in August 2003.
Audit Committee
The Audit Committee currently consists of Messrs. Chisholm, Ferri and Gerdelman, each of whom is independent, as defined by the applicable Nasdaq listing requirements. In December 2002, Messr. Chisholm was elected to the Audit Committee, replacing Messr. Barrows on the Audit Committee. In June 2003, Messr. Chisholm was elected Chairman of the Audit Committee. Messr. Gerdelman currently serves as the Financial Expert of the Audit Committee, as defined by rules of the Commission enacted under Section 407 of the Sarbanes-Oxley Act of 2002. The Audit Committee reviews the professional services provided by the Corporation’s independent auditors, the independence of such auditors from the Corporation’s management and the Corporation’s annual and quarterly financial statements. The Audit Committee also reviews such other matters with respect to the Corporation’s accounting, auditing and financial reporting practices and procedures as it may find appropriate or may be brought to its attention. The Board of Directors has adopted a written charter for the Audit Committee, a copy of which is attached as Appendix A to this Proxy Statement. During fiscal 2003, the Audit Committee held ten meetings. For additional information concerning the Audit Committee, see “Report of the Audit Committee.”
Special Litigation Committee
The Special Litigation Committee is a temporary committee of the Board of Directors, consisting of Messrs. Chisholm and Gerdelman, each of whom are independent directors who are not defendants in the securities class action litigation pending against the Corporation. The purpose of the committee is to determine whether and on what terms the Corporation should enter into agreements to settle that litigation.
The Corporation reimburses directors for reasonable out-of-pocket expenses incurred in attending meetings of the Board of Directors and committees. Beginning in the fourth quarter of fiscal 2003, each non-employee director receives an annual retainer of $30,000, which is paid on a quarterly basis. Prior to this, the Corporation’s
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non-employee directors did not receive any cash compensation. The Board of Directors adopted this change in order to bring the compensation packages of the Corporation’s non-employee board members more in line with compensation paid to outside directors of comparable companies, to recognize the increased workload and responsibilities of Board and Committee members in recent years, and to enable the Corporation to attract qualified directors when needed. Pursuant to the Corporation’s 1999 Non-Employee Director Stock Option Plan, (the “Director Option Plan”), all non-employee directors of the Corporation are automatically granted non-qualified stock options to purchase 90,000 shares of Common Stock which vests over three years upon their initial appointment to the Board of Directors. Thereafter, on an annual basis immediately following each annual meeting of stockholders, each non-employee director is granted an option to purchase 30,000 shares of Common Stock which vests in one year. Under the plan, options are fully exercisable on the date of grant, however, shares purchased on exercise of such options are subject to repurchase by the Corporation prior to completion of the applicable vesting period. The exercise price per share of all options granted under the Director Option Plan is equal to the fair market value of the Corporation’s Common Stock on the date of grant, and such options expire on the date which is ten years from the date of option grant. At the annual meeting of stockholders held on December 19, 2002, each of the following non-employee directors received an option to purchase 30,000 shares of Common Stock with an exercise price of $2.90 per share: Messrs. Barrows, Chisholm, Ferri and Gerdelman.
Recommendation of the Board of Directors
The Board of Directors unanimously recommends a voteFORthe election of the nominees listed above.
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RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected PricewaterhouseCoopers LLP as independent auditors to audit the financial statements of the Corporation for the year ending July 31, 2004. PricewaterhouseCoopers LLP has acted as the Corporation’s independent auditors since the Corporation’s inception. A representative of PricewaterhouseCoopers LLP is expected to be present at the Annual Meeting with the opportunity to make a statement if the representative desires to do so, and is expected to be available to respond to appropriate questions. If the stockholders do not ratify the Board of Directors’ selection of PricewaterhouseCoopers LLP as the Corporation’s independent auditors for fiscal year 2004, the Board of Directors will reconsider the matter at its next meeting.
Principal Accountant Fees and Services
The following is a summary of the fees billed to the Corporation by PricewaterhouseCoopers LLP for professional services rendered for the fiscal years ended July 31, 2003 and July 31, 2002:
Fee Category | Fiscal 2003 Fees | Fiscal 2002 Fees | ||||
Audit Fees | $ | 213,000 | $ | 234,500 | ||
Audit-Related Fees | 60,000 | 24,500 | ||||
Tax Fees | 28,500 | 74,800 | ||||
All Other Fees | 13,800 | 1,400 | ||||
Total Fees | $ | 315,300 | $ | 335,200 | ||
Audit Fees. Consists of fees billed for professional services rendered for the audit of the Corporation’s financial statements for the fiscal years ended July 31, 2003 and July 31, 2002, and for reviews of the interim financial statements included in the Corporation’s quarterly reports on Form 10-Q.
Audit-Related Fees. Consists of fees billed for professional services rendered for audit-related services including consultations on other financial accounting and reporting related matters.
Tax Fees. Consists of fees billed for professional services relating to tax compliance and other.
All Other Fees. Consists of fees billed for all other services.
Audit Committee Pre-Approval Policy
The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis.
Recommendation of the Board of Directors
The Board of Directors recommends a voteFOR the ratification of the selection of PricewaterhouseCoopers LLP as independent auditors.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of September 30, 2003, with respect to beneficial ownership of Common Stock by: (i) each person who, to the knowledge of the Corporation, beneficially owned more than 5% of the shares of Common Stock outstanding as of such date; (ii) each director of the Corporation; (iii) each executive officer identified in the Summary Compensation Table set forth below under the heading “Compensation and Other Information Concerning Executive Officers”; and (iv) all directors and executive officers as a group.
For purposes of the following table, beneficial ownership is determined in accordance with the rules of the Commission. Except as otherwise noted in the footnotes below, the Corporation believes that each person or entity named in the table has sole voting and investment power with respect to all shares of its Common Stock shown as beneficially owned by them, subject to applicable community property laws. The percentage of shares of Common Stock outstanding is based on 272,072,352 shares of Common Stock outstanding as of September 30, 2003. In computing the number of shares beneficially owned by a person named in the following table and the percentage ownership of that person, shares of Common Stock that are subject to options held by that person that are currently exercisable or exercisable within 60 days of September 30, 2003 are deemed outstanding. These shares are not, however, deemed outstanding for the purpose of computing the percentage ownership of any other person.
Name and Address of Beneficial Owner(1) | Amount and Nature of Beneficial Ownership | Percentage of Outstanding | ||
Gururaj Deshpande (2) | 45,712,807 | 16.8 | ||
Daniel E. Smith (3) | 42,936,349 | 15.8 | ||
John E. Dowling | 2,997,114 | 1.1 | ||
Kevin J. Oye (4) | 2,148,538 | * | ||
Frances M. Jewels (5) | 2,134,223 | * | ||
Araldo Menegon (6) | 1,700,000 | * | ||
Timothy A. Barrows (7) | 1,898,663 | * | ||
Paul J. Ferri (7) | 485,553 | * | ||
John W. Gerdelman (8) | 191,850 | * | ||
Paul W. Chisholm (9) | 120,000 | * | ||
Platyko Partners, L.P. | 21,775,000 | 8.0 | ||
The Gururaj Deshpande Grantor Retained Annuity Trust | 17,918,400 | 6.6 | ||
All executive officers and directors as a group (10 persons)(10) | 100,224,279 | 36.1 |
| * | Less than 1% of the total number of outstanding shares of Common Stock. |
| (1) | Except as otherwise noted, the address of each person is: c/o Sycamore Networks, Inc., 220 Mill Road, Chelmsford, Massachusetts 01824. |
| (2) | Includes 2,937,500 shares held by the Deshpande Irrevocable Trust and 17,918,400 shares held by the Gururaj Deshpande Grantor Retained Annuity Trust. Mr. Deshpande’s wife serves as a trustee of each of these trusts. Mr. Deshpande disclaims beneficial ownership of these shares. |
| (3) | Includes 21,775,000 shares held by Platyko Partners, L.P., of which Mr. Smith and his wife serve as general partners. |
| (4) | Includes 2,114,457 shares issuable pursuant to options which are immediately exercisable and subject to a repurchase right which lapses as the shares vest. |
| (5) | Includes 1,000,000 shares issuable pursuant to options which are immediately exercisable and subject to a repurchase right which lapses as the shares vest. |
| (6) | Consists of 1,700,000 shares issuable pursuant to options which are immediately exercisable and subject to a repurchase right which lapses as the shares vest. |
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| (7) | For each of Messrs. Barrows and Ferri, includes 90,000 shares issuable pursuant to options which are immediately exercisable and subject to a repurchase right which lapses as the shares vest. Also includes 100,818 shares held by Matrix V Entrepreneurs Fund, L.P. Matrix V Management Co., LLC is the general partner of Matrix V Entrepreneurs Fund, L.P. Messrs. Barrows and Ferri, directors of the Corporation, are managing members of Matrix V Management Co., LLC. Messrs. Barrows and Ferri disclaim beneficial ownership of the shares held by Matrix V Entrepreneurs Fund, L.P. except to the extent of their pecuniary interests therein arising from their membership interests in Matrix V Management Co., LLC. |
| (8) | Includes 180,000 shares issuable pursuant to options which are immediately exercisable and subject to a repurchase right which lapses as the shares vest. |
| (9) | Consists of 120,000 shares issuable pursuant to options which are immediately exercisable and subject to a repurchase right which lapses as the shares vest. |
| (10) | Includes an aggregate of 5,294,457 shares issuable pursuant to options which are immediately exercisable and subject to a repurchase right which lapses as the shares vest. |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act of 1934, as amended, requires the Corporation’s directors, executive officers and holders of more than 10% of the Corporation’s outstanding shares of Common Stock (collectively, “Reporting Persons”) to file with the Commission initial reports of ownership and reports of changes in ownership of the Common Stock of the Corporation. Such persons are required by regulations of the Commission to furnish the Corporation with copies of all such filings. Based solely on its review of the copies of such filings received by it with respect to the fiscal year ended July 31, 2003, the Corporation believes that all Reporting Persons complied with all Section 16(a) filing requirements in the fiscal year ended July 31, 2003.
COMPENSATION AND OTHER INFORMATION CONCERNING EXECUTIVE OFFICERS
Compensation Committee Report on Executive Compensation
The Compensation Committee (the “Committee”) is composed of two independent, non-employee directors of the Board of Directors, neither of whom have interlocking relationships as defined by the Commission. The Committee is responsible for establishing and monitoring policies governing the annual compensation of executive officers. The Committee periodically reviews the approach to executive compensation and makes adjustments as competitive conditions and other circumstances warrant.
Compensation Philosophy
The Corporation operates in the competitive and rapidly changing high technology industry. The Committee believes that executive officer compensation should be determined based on a combination of individual and business objectives and competitive data. The Committee seeks to attract, retain and motivate executive officers through a total compensation package which includes (i) base salary, (ii) variable incentive awards and (iii) long-term, equity-based incentives in the form of restricted stock and stock options. In fiscal 2003, compensation for the Corporation’s executive officers consisted of base salary, long-term equity-based incentive awards and performance bonuses for certain individuals.
The Committee reviews market information from published survey data and considers the compensation practices of companies in the Corporation’s industry to determine whether the Corporation’s compensation structure (a) is competitive in the industry; (b) motivates executive officers to achieve the Corporation’s business objectives; and (c) aligns the interests of executive officers with the long-term interests of stockholders. The Committee’s goal is to set the Corporation’s executive officer total compensation at levels that are generally comparable to the market data and typically targets between the fiftieth and the seventy-fifth percentile for total
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compensation. The Committee also reviewed certain milestones achieved by the Corporation, including several new product features and enhancements, individual executive officer duties and contributions and the Corporation’s financial performance in fiscal 2003.
Base Salaries
Base salaries for the Corporation’s executive officers in fiscal 2003 remained considerably below the fiftieth percentile level of comparable positions at other companies in the Corporation’s industry. The below market salaries are consistent with the Committee’s objective to attract, retain and motivate executive officers primarily through long-term, equity-based incentives. During fiscal 2003, the Committee approved increases in the base salaries of Ms. Jewels and Mr. Oye. The Committee intends to continue to adjust compensation appropriately in order to attract and retain executives who manage the Corporation effectively, and align the interests of its executive officers with the long-term interests of stockholders.
Performance Bonuses
During fiscal 2003, the Corporation’s performance bonus plan was based upon the performance of the Corporation, as well as individual performance. Based on the achievement of certain individual performance objectives in fiscal 2003, the Committee approved the payment of bonuses to Ms. Jewels and Mr. Oye. The Committee has implemented a bonus plan for the upcoming fiscal year which consists of a percentage of base salary, measured against the performance of the Corporation relative to certain financial goals, and individual performance relative to certain key strategic objectives of the Corporation.
Long-Term Equity Incentives
The Committee’s view in granting long-term equity incentives to the Corporation’s executive officers is to provide each executive officer with compensation opportunities directly aligned with the creation of stockholder value. In determining the amounts of the long-term equity incentives to be awarded to each executive officer, the Committee takes into account the executive officer’s position with the Corporation, the executive officer’s past performance, the number and price of unvested options and restricted stock held by the executive officer and the long-term equity incentive awards made to individuals in similar positions at other companies in the Corporation’s industry. Based upon these factors, the Committee determines the amount of the long-term equity incentives at levels it considers appropriate to create a meaningful opportunity for stock ownership. The weight given to each of these factors varies among individuals at the Committee’s discretion.
During fiscal 2003, options to purchase 1.7 million shares of common stock vesting over a five-year period were granted to Mr. Menegon in conjunction with his initial employment by the Corporation. Such options will allow Mr. Menegon to acquire shares at a fixed price per share over a specified period of time, contingent upon his continued employment. No other executive officers were granted long-term equity incentives during fiscal 2003.
Chief Executive Officer Compensation
Mr. Smith has served as the Corporation’s Chief Executive Officer since October 1998. Mr. Smith’s base salary for fiscal 2003 remained unchanged and is set below the twenty-fifth percentile of the surveyed data in order to have a substantial portion of his total compensation tied to the Corporation’s performance in the form of long-term equity incentive awards. Upon review of Mr. Smith’s long-term equity incentives, the Committee determined that the stock holdings of Mr. Smith adequately aligned his interests with those of the stockholders and therefore Mr. Smith was not granted any additional restricted stock or stock options in fiscal 2003. Mr. Smith was not paid a performance bonus in fiscal 2003. The Committee may adjust Mr. Smith’s salary in the future, based upon comparative salaries of chief executive officers in the Corporation’s industry, and other factors which may include the financial performance of the Corporation and Mr. Smith’s success in meeting strategic goals.
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Policy on Deductibility of Executive Compensation
The Committee does not believe Section 162(m) of the Internal Revenue Code of 1986, as amended, which disallows a tax deduction for certain compensation in excess of $1 million, will likely have an effect on the Corporation in the near future. The Committee believes that stock options granted under the Corporation’s stock plans meet the exception for qualified performance-based compensation in accordance with Internal Revenue Code Regulations, so that amounts otherwise deductible with respect to such options will not count toward the $1 million deduction limit. The Committee’s general policy is to take into account the deductibility of compensation in determining the type and amount of compensation payable to executive officers.
Respectfully submitted by the Compensation Committee:
Timothy A. Barrows
Paul J. Ferri
Compensation Committee Interlocks and Insider Participation
Neither of the members of the Committee is currently, or has been, at any time since the Corporation’s formation, an officer or employee of the Corporation. No interlocking relationship exists between any member of the Corporation’s Board of Directors or the Committee and any member of the Board of Directors or compensation committee of any other company.
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The table below sets forth, for the fiscal year ended July 31, 2003, the compensation earned by the Corporation’s Chief Executive Officer and the four other most highly compensated individuals who were serving as executive officers at the end of fiscal 2003, or who served as executive officers during fiscal 2003. Collectively, all of these individuals are referred to below as the Named Executive Officers.
In accordance with the rules of the Commission, the compensation set forth in the table below does not include medical, group life or other benefits which are available to all of the Corporation’s salaried employees, and perquisites and other benefits, securities or property which do not exceed the lesser of $50,000 or 10% of the person’s salary and bonus shown in the table. In the table below, columns required by the regulations of the Commission have been omitted where no information was required to be disclosed under those columns.
Summary Compensation Table(1)
| Annual Compensation | Long-Term Compensation Awards | |||||||||||||
| Year | Salary ($) | Bonus ($) | Other Annual Compensation ($) | Securities Underlying Options/SARS (#) | All Other Compensation ($) | |||||||||
Daniel E. Smith | ||||||||||||||
President and Chief Executive Officer | 2003 2002 2001 | 100,000 100,000 100,000 | — — — |
| — — — | — — — | — — — |
| ||||||
Araldo Menegon | ||||||||||||||
Vice President, Worldwide Sales and Support | 2003 2002 2001 | 192,308 — — | 135,294 — — | (2)
| — — — | 1,700,000 — | — — — |
| ||||||
Frances M. Jewels | ||||||||||||||
Chief Financial Officer, Vice President, Finance and Administration, Treasurer and Secretary | 2003 2002 2001 | 198,462 186,000 184,825 | 45,000 — |
| — — — | — 500,000 500,000 | — — — |
| ||||||
Kevin J. Oye | ||||||||||||||
Vice President, Systems and Technology | 2003 2002 2001 | 191,707 182,750 181,750 | 20,000 — |
| — — — | — 1,000,000 200,000 | — — |
| ||||||
John E. Dowling | ||||||||||||||
Vice President, Operations | 2003 2002 2001 | 159,000 159,000 157,900 | — — — |
| — — — | — — — | — — — |
| ||||||
| (1) | As of July 31, 2003, the remaining number of shares of restricted Common Stock held by the Named Executive Officers that had not vested and the value of this restricted Common Stock was as follows: Mr. Smith: 506,250 shares, $2,087,978; Ms. Jewels: 225,000 shares, $904,253; and Mr. Dowling: 112,500 shares, $463,995. The value is based on the fair market value at July 31, 2003 ($4.13 per share as quoted on the Nasdaq National Market) less the purchase price paid per share. Holders of restricted Common Stock are entitled to receive any dividends the Corporation may pay on its Common Stock. |
| (2) | Consists of commissions paid in fiscal 2003. Mr. Menegon joined the Corporation in August 2002. |
| (3) | Represents reimbursement for relocation expenses. |
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Option Grants in Last Fiscal Year
The following table provides the specified information concerning options granted to the Corporation’s Named Executive Officers during the fiscal year ended July 31, 2003.
OPTION GRANTS IN LAST FISCAL YEAR
Name | Number of Securities Underlying Options Granted (1) (#) | % of Total in Fiscal Year | Exercise Price | Expiration Date | Potential Realizable Value of Assumed Annual Rates of Stock Price Appreciation For Option Term (2) | |||||||||||||
| 0% ($) | 5% ($) | 10% ($) | ||||||||||||||||
Daniel E. Smith | 0 | — | — | — | — | — | — | |||||||||||
Araldo Menegon | 1,500,000 | 27.0 | % | $ | 2.79 | 08/05/12 | — | 2,631,924 | 6,669,812 | |||||||||
| 200,000 | (3) | 3.6 | % | $ | 2.79 | 01/02/13 | 24,000 | (3) | 390,017 | 951,558 | ||||||||
Frances M. Jewels | 0 | — | — | — | — | — | — | |||||||||||
Kevin J. Oye | 0 | — | — | — | — | — | — | |||||||||||
John E. Dowling | 0 | — | — | — | — | — | — | |||||||||||
| (1) | Represents options granted to the Named Executive Officer above under the Corporation’s 1999 Stock Incentive Plan. The options are exercisable immediately, subject to a repurchase right by the Corporation which lapses as the options vest over a five year vesting period. |
| (2) | Amounts represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. The assumed 0%, 5% and 10% rates of stock price appreciation are provided in accordance with the rules of the Commission and do not represent the Corporation’s estimate or projection of the future Common Stock price. Potential gains are net of the exercise price but before taxes associated with the exercise. Actual gains, if any, on stock option exercises are dependent on the future financial performance of the Corporation, overall market conditions and the option holder’s continued employment through the vesting period. |
| (3) | The Corporation granted to Mr. Menegon options to purchase 1,500,000 shares of common stock on his first day of employment, and agreed to grant an additional 200,000 shares on the first business day of calendar year 2003, at the lower of the fair market value on that date or his first day of employment. The fair market value of the Corporation’s common stock on January 2, 2003 was $2.91, as compared to $2.79 on Mr. Menegon’s first day of employment, resulting in an intrinsic value of $24,000 for the option grant of 200,000 shares. |
Option Exercises and Fiscal Year-End Values
The following table provides the specified information concerning option exercises in the last fiscal year and unexercised options held as of July 31, 2003 by the Corporation’s Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Name | Shares Acquired on Exercise (#) | Value Realized ($) | Number of Securities Underlying Unexercised Options at Fiscal Year-end (#) | Value of Unexercised In-the-Money Options at Fiscal Year-end ($) (2) | ||||||||
| Exercisable (1) | Unexercisable | Exercisable | Unexercisable | |||||||||
Daniel E. Smith | — | — | — | — | — | — | ||||||
Araldo Menegon | — | — | 1,700,000 | — | 2,278,000 | — | ||||||
Frances M. Jewels | — | — | 1,000,000 | — | 395,000 | — | ||||||
Kevin J. Oye | — | — | 2,114,457 | — | 790,000 | — | ||||||
John E. Dowling | — | — | — | — | — | — | ||||||
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| (1) | Options granted under the Corporation’s 1999 Stock Incentive Plan are exercisable immediately, subject to a repurchase right in favor of the Corporation which lapses as the option vests over periods ranging from three to five years. |
| (2) | Value is based on the difference between the option exercise price and the fair market value at July 31, 2003 ($4.13 per share as quoted on the Nasdaq National Market), multiplied by the number of shares underlying the option. |
Each of the Corporation’s Named Executive Officers has entered into a change in control agreement with the Corporation. Under these agreements, each option or restricted stock grant held by the Named Executive Officer which is scheduled to vest within the 12 months after the effectiveness of a change of control of the Corporation will instead vest immediately prior to the change in control. In addition, in the event of a “Subsequent Acquisition” of the Corporation (as defined in these agreements) following a change in control, all options or restricted stock granted by the Corporation to such Named Executive Officers will vest immediately prior to the effectiveness of such acquisition. If a Named Executive Officer is subject to any excise tax on amounts characterized as excess parachute payments, due to the benefits provided under this agreement, the Named Executive Officer shall be entitled to reimbursement of up to $1,000,000 for any excess parachute excise taxes the Named Executive Officer may incur.
In the event of a termination of a Named Executive Officer’s employment following a change in control, either by the surviving entity without cause or by the Named Executive Officer due to a constructive termination, (1) all options and restricted stock of the Named Executive Officer vest, (2) the Named Executive Officer is entitled to continued paid coverage under the Corporation’s group health plans for 18 months after such termination, (3) the Named Executive Officer shall receive a pro rata portion of his or her performance bonus for the year in which the termination occurred, (4) the Named Executive Officer shall receive an amount equal to 18 months of his or her base salary and (5) the Named Executive Officer shall receive an amount equal to 150% of his or her annual performance bonus for the year in which the termination occurred.
Under these agreements, each Named Executive Officer agrees to abide by the Corporation’s confidentiality and proprietary rights agreements and, for a period of one year after such termination, not to solicit the Corporation’s employees or customers.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July 2000, the Corporation and the Chairman of the Corporation’s Board of Directors (the “Chairman”), entered into an Investor Agreement with Tejas Networks India Private Limited, a private company incorporated in India (“Tejas”), pursuant to which the Corporation and the Chairman each invested $2.2 million in Tejas in exchange for equity shares of Tejas. The Chairman also serves as the Chairman of the Board of Directors of Tejas. An executive officer of the Corporation also attends meetings of the Board of Directors of Tejas for the sole purpose of representing the Corporation’s business interests, if any. The Corporation has entered into various agreements with Tejas under which the Corporation has licensed certain proprietary software development tools to Tejas, and Tejas will assist the Corporation’s business development efforts in India and also provide maintenance and other services to the Corporation’s customers in India. During the year ended July 31, 2003, the Corporation recognized revenue of $0.2 million relating to transactions with Tejas. During the year ended July 31, 2002, the Corporation did not engage in any material transactions with Tejas. During the year ended July 31, 2001, the Corporation made payments of $1.1 million to Tejas and recognized revenue of $0.1 million relating to transactions with Tejas.
All transactions involving the Corporation and its officers, directors, principal stockholders and their affiliates, including those since the Corporation’s initial public offering, will be and have been approved by a majority of the Board of Directors, including a majority of the independent and disinterested directors on the Board of Directors, and will be and have been on terms no less favorable to the Corporation than could be obtained from unaffiliated third parties.
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The Audit Committee’s purpose is to assist the Board of Directors in its oversight of the Corporation’s financial accounting, reporting and internal controls. The Audit Committee operates pursuant to the Audit Committee Charter approved by the Board of Directors.
Management is responsible for the preparation, presentation and integrity of the Corporation’s consolidated financial statements, the selection of appropriate accounting and financial reporting principles, and for the maintenance of internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent auditors, PricewaterhouseCoopers LLP, are responsible for performing an independent audit of the consolidated financial statements in accordance with generally accepted auditing standards. The Audit Committee periodically meets with the independent auditors, with and without management present, to discuss the results of their examinations, their evaluations of the Corporation’s internal controls and the overall quality of the Corporation’s financial reporting.
In performing its oversight role, the Audit Committee considered and discussed the audited financial statements with management and the independent auditors. The Audit Committee also discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended by Statement on Auditing Standards No. 90, Audit Committee Communications, including the quality and acceptability of the Corporation’s accounting principles as applied in its financial reporting. The Audit Committee received the written disclosures and the letter from the independent auditors required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees. The Audit Committee also considered whether the provision of non-audit services by the independent auditors is compatible with maintaining the auditors’ independence and has discussed with the auditors their independence.
Based upon the Audit Committee’s discussions with management and the independent auditors and the Audit Committee’s review of the representations of management, and the report of the independent auditors to the Audit Committee, the Audit Committee recommended that the Board of Directors include the audited consolidated financial statements in the Corporation’s Annual Report on Form 10-K for the year ended July 31, 2003, as filed with the Securities and Exchange Commission on October 21, 2003.
Respectfully submitted by the Audit Committee
Paul W. Chisholm (Chairman)
Paul J. Ferri
John W. Gerdelman
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The following graph compares the yearly percentage change in the cumulative total stockholder return on the Corporation’s Common Stock during the period from the Corporation’s initial public offering through July 31, 2003, with the cumulative total return on the S&P 500 and the Nasdaq Telecommunications Index. The comparison assumes $100 was invested on October 22, 1999 (the date of the Corporation’s initial public offering) in the Corporation’s Common Stock and in each of the foregoing indices and assumes reinvestment of dividends, if any. The performance shown is not necessarily indicative of future performance.
Comparison of Cumulative Total Return* Among
Sycamore Networks, Inc.,
The S&P 500 and The Nasdaq Telecommunications Index
| * | Prior to October 22, 1999, the Corporation’s Common Stock was not publicly traded. Comparative data is provided only for the period since that date. |
Notwithstanding anything to the contrary set forth in any of the Corporation’s filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate other filings with the Commission, including this Proxy Statement, in whole or in part, the Compensation Committee Report on Executive Compensation and the Stock Performance Graph shall not be deemed incorporated by reference into any such filings.
Pursuant to Section 406 of the Sarbanes-Oxley Act of 2002, the Corporation has adopted a code of ethics that applies to its principal executive officer and all members of its finance department, including the
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Corporation’s principal financial and accounting officer. A copy of the code of ethics can be obtained without charge by written request to Investor Relations, Sycamore Networks, Inc., 220 Mill Road, Chelmsford, Massachusetts 01824. In the event that the Corporation makes any substantive amendment of, or grants any waiver to, this code of ethics, the Corporation will disclose the nature of such amendment or waiver in a current report on Form 8-K.
To be eligible for inclusion in the proxy statement to be furnished to all stockholders entitled to vote at the 2004 Annual Meeting of Stockholders of the Corporation, proposals of stockholders must be received at the Corporation’s principal executive offices not later than July 15, 2004 and must otherwise satisfy the conditions established by the Commission for stockholder proposals to be included in the Corporation’s proxy statement for that meeting. In accordance with the Corporation’s Amended and Restated By-Laws, proposals of stockholders intended for presentation at the 2004 Annual Meeting of the Stockholders of the Corporation (but not intended to be included in the proxy statement for that meeting) must be received no earlier than September 20, 2004 and no later than October 10, 2004. In order to curtail any controversy as to the date on which a proposal was received by the Corporation, it is suggested that proponents submit their proposals by Certified Mail, Return Receipt Requested, to the attention of the Corporation’s Secretary.
At the date of this Proxy Statement, the only business which the Board of Directors intends to present or knows that others will present at the Annual Meeting is as set forth above. If any other matter or matters are properly brought before the Annual Meeting, or an adjournment or postponement thereof, it is the intention of the persons named in the accompanying form of proxy to vote the proxy on such matters in accordance with their best judgment.
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CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS OF SYCAMORE NETWORKS, INC.
AS ADOPTED BY THE BOARD ON JUNE 4, 2003
The Audit Committee (the “Committee”) is appointed by the Board of Directors (the “Board”) of Sycamore Networks, Inc. (the “Company”). The purpose of the Committee is to assist the Board in fulfilling its legal and fiduciary obligations with respect to matters involving the accounting, auditing, financial reporting, internal control and legal compliance functions of the Company, including, without limitation, (a) overseeing, or assisting the Board’s oversight of, (i) the accounting and financial reporting processes of the Company and the audits of the financial statements of the Company, (ii) the integrity of the Company’s financial statements, (iii) the Company’s compliance with legal and regulatory requirements, (iv) the Company’s independent auditors’ qualifications and independence, and (v) the performance of the Company’s independent auditors, and (b) preparing the report required to be prepared by the Committee pursuant to the rules of the Securities and Exchange Commission (the “SEC”) for inclusion in the Company’s annual proxy statement.
The Committee shall be comprised of three or more directors as determined by the Board. Each member of the Committee shall be qualified to serve on the Committee pursuant to the requirements of the Nasdaq National Market (the “Nasdaq”) and the Sarbanes—Oxley Act of 2002 (the “Act”) and the rules and regulations promulgated by the SEC pursuant to the Act (the “Regulations”).
All members of the Committee shall be financially literate in accordance with the requirements of Nasdaq. “Financial literacy” shall be determined by the Board in the exercise of its business judgment, and shall include a working familiarity with basic finance and accounting practices and an ability to read and understand fundamental financial statements including a balance sheet, income statement and statement of cash flows. At least one member of the Committee shall have the financial expertise required pursuant to the requirements of Nasdaq, the Act and the Regulations. Committee members, if they or the Board deem it appropriate, may enhance their understanding of finance and accounting by participating in educational programs conducted by the Company or an outside consultant or firm.
The Committee shall have the authority to retain, and determine the funding for, independent counsel, consultants or others to assist the Committee in fulfilling its duties and responsibilities, the cost of such independent expert advisors to be borne by the Company. The Committee shall have the sole authority to appoint, determine the funding for and the retention of, and oversee the independent auditors as set forth in Section 10A(m)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Committee may request any officer or employee of the Company or the Company’s outside counsel or independent auditor to attend a meeting of the Committee or to meet with any members of, or consultants to, the Committee. It is the objective of the Committee to maintain free and open means of communication among the Board, the independent auditors and the financial and senior management of the Company.
The Committee shall make regular reports to the Board.
The Committee shall:
| 1. | Review and reassess the adequacy of this charter annually and recommend any proposed changes to the Board for approval. |
| 2. | Review with management and the Company’s independent auditors the following: |
| (a) | the Company’s annual audited financial statements including disclosure under Management Discussion and Analysis included in the Company’s Annual Report on Form 10-K prior to their filing with the SEC and review and consider with the independent auditors the matters required to be discussed by Statement of Auditing Standards No. 61, as amended; |
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| (b) | the Company’s quarterly financial statements including disclosure under Management Discussion and Analysis prior to the filing of the Company’s Quarterly Reports on Form 10-Q; |
| (c) | critical accounting policies and such other accounting policies of the Company as are deemed appropriate for review by the Committee prior to any interim or year-end filings with the SEC or other regulatory body, including (i) any financial reporting issues which could have a material impact on the Company’s financial statements, (ii) the reasons why certain estimates or policies are or are not considered critical and how current and anticipated future events impact those determinations, and (iii) an assessment of management’s disclosures along with any significant proposed modifications by the auditors that were not included; |
| (d) | all alternative treatments of financial information that have been discussed by the independent auditors and management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditors; |
| (e) | all other material written communications between the independent auditors and management, such as any management letter or schedule of unadjusted differences; |
| (f) | major changes to the Company’s accounting principles and practices as suggested by the independent auditors or management; and |
| (g) | any problems or difficulties encountered in the course of the audit work, including any restrictions on the scope of activities or access to required information and any changes required in the planned scope of the audit. |
| 3. | Appoint, in its sole discretion, the independent auditors, which firm is ultimately accountable to the Committee, as representatives of the stockholders of the Company and shall report directly to the Committee. |
| 4. | Review and, in its sole discretion, approve in advance the annual engagement letter from the independent auditors, including the proposed audit fees to be paid to the independent auditors, as well as all audit and, as provided in the Act and the Regulations, all permitted non-audit engagements and relationships between the Company and the auditors as set forth in Section 10A(i) of the Exchange Act (which approval should be made after receiving input from the Company’s management). Approval of audit and permitted non-audit services may also be made by one or more members of the Committee as shall be designated by the Committee and the decision of such person(s) to preapprove an activity shall be presented to the full Committee at each of its scheduled meetings. |
| 5. | Review the performance of the independent auditors and, in its sole discretion, make decisions regarding the replacement or termination of the independent auditors when circumstances warrant. |
| 6. | Meet with the independent auditors prior to the audit to review the planning and scope of the audit. |
| 7. | Resolve all disagreements between the independent auditors and management regarding financial reporting. |
| 8. | Obtain from the independent auditors assurance that they will inform the Company’s management concerning any information indicating that an illegal act has or may have occurred that could have a material effect on the Company’s financial statements, and ensure that such information has been conveyed to the Committee. |
| 9. | Oversee the independence of the Company’s independent auditors by, among other things: |
| (a) | requiring the independent auditors to deliver to the Committee on a periodic basis a formal written statement delineating any relationships that may reasonably be thought to bear on the independence of the independent auditors from the Company; |
| (b) | actively engaging in a dialogue with the independent auditors with respect to any disclosed relationships or services that may impact the objectivity and independence of the independent auditors and recommending that the Board take appropriate action to oversee the independence of the independent auditors; |
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| (c) | ensuring that the lead (or coordinating) audit partner and reviewing partner responsible for the audit of the Company’s financial statements have not performed audit services for the Company for more than the previous five consecutive fiscal years of the Company and otherwise monitoring compliance by the Company’s auditors with the audit partner rotation requirements contained in the Act and the Regulations; |
| (d) | ensuring that the chief executive officer, controller, chief financial officer, chief accounting officer or other person serving in an equivalent position of the Company, was not, within one year prior to the initiation of the audit, an employee of the independent auditor who participated in any capacity in the Company’s audit; and |
| (e) | ensuring that employment relationships with the Company of former or current employees of the independent auditors comply with the requirements contained in the Act and the Regulations. |
| 10. | Review with the chief executive officer and chief financial officer and independent auditors, periodically, the following: |
| (a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize, and report financial data, including any material weaknesses in internal controls; |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls; and |
| (c) | any significant changes in internal controls or in other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses. |
| 11. | Advise the Board with respect to the Company’s policies and procedures regarding compliance with applicable laws and regulations and with the Company’s Code of Ethics. Discuss with management and the independent auditors any condition which comes to their attention indicating that the Company’s subsidiaries and affiliated entities, domestic and foreign, are not conforming to the applicable legal requirements or the Company’s Code of Ethics. |
| 12. | Prepare the report required by the rules of the SEC to be included in the Company’s annual proxy statement. |
| 13. | Review the Company’s legal matters that may have a material impact on the financial statements, the Company’s compliance policies and any material reports or inquiries received from regulators or governmental agencies. |
| 14. | Establish procedures for (i) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters; and (ii) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters. |
| 15. | Meet with such frequency and at such intervals as the Committee shall determine is necessary to carry out its duties and responsibilities. As part of its purpose to foster open communications, the Committee shall meet at least annually with management and the Company’s independent auditors in separate executive sessions to discuss any matters that the Committee or each of these groups or persons believe should be discussed privately. The Chairman should work with the Chief Financial Officer and management to establish the agendas for Committee meetings. The Committee, in its discretion, may ask members of management or others to attend its meetings (or portions thereof) and to provide pertinent information as necessary. The Committee shall maintain minutes of its meetings and records relating to those meetings and the Committee’s activities and provide copies of such minutes to the Board. |
| 16. | Perform such additional activities, and consider such other matters, within the scope of its responsibilities, as the Committee or the Board deems necessary or appropriate. |
While the Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Committee to plan or conduct audits or to determine that the Company’s financial statements are complete and accurate and are in accordance with generally accepted accounting principles. This is the responsibility of management and the independent auditors. Nor is it the duty of the Committee to conduct investigations or to assure compliance with laws and regulations and the Company’s Code of Ethics.
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SYC-PS-03
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| P | SYCAMORE NETWORKS, INC. | |
| R | ||
| O | Proxy for Annual Meeting of Stockholders | |
| X | ||
| Y | December 18, 2003 | |
| SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS | ||
The undersigned hereby appoints Daniel E. Smith and Frances M. Jewels, and each of them, proxies, with full power of substitution, to vote all shares of stock of Sycamore Networks, Inc. (the “Corporation”) which the undersigned is entitled to vote at the Annual Meeting of Stockholders of the Corporation to be held on Thursday, December 18, 2003 (the “Annual Meeting”) at 9:00 A.M., local time, at the Radisson Hotel, 10 Independence Drive, Chelmsford, Massachusetts 01824, and at any postponements and adjournments thereof, upon matters set forth in the Notice of Annual Meeting of Stockholders and Proxy Statement dated November 12, 2003, a copy of which has been received by the undersigned. The proxies are further authorized to vote, in their discretion, upon such other business as may properly come before the meeting or any postponements or adjournments thereof.
| CONTINUED AND TO BE SIGNED ON REVERSE SIDE | ||
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SYCAMORE NETWORKS, INC.
C/O EQUISERVE TRUST COMPANY, N.A.
P.O. BOX 8694
EDISON, NJ 08818-8694
Your vote is important. Please vote immediately.
Vote-by-Internet
Log on to the Internet and go to http://www.eproxyvote.com/scmr | OR | Vote–by-Telephone
Call toll-free 1-877-PRX-VOTE (1-877-779-8683) | ||||
If you vote over the Internet or by telephone, please do not mail your card.
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Please mark votes as in this example
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED “FOR” THE PROPOSALS IN ITEMS 1 AND 2.
1. To elect the following two nominees to the Board of Directors to serve for three year terms as Class I Directors and until their respective successors are elected and qualified:
Nominees:
(01) Timothy A. Barrows and (02) John W. Gerdelman
¨ FOR ¨ WITHHELD
¨
For all nominees except as noted above. To withhold authority to vote for any individual nominee, write the name of the nominee on the above line.
2. To ratify the selection of the firm of PricewaterhouseCoopers LLP as auditors of the Corporation for the fiscal year ending July 31, 2004.
¨ FOR ¨ AGAINST ¨ ABSTAIN
3. To transact such other business as may properly come before the meeting and any adjournment thereof.
¨ MARK HERE IF YOU PLAN TO ATTEND THE MEETING
¨ MARK HERE FOR ADDRESS
CHANGE AND NOTE BELOW
If signing as attorney, executor, trustee or guardian, please give your full title as such. If stock is held jointly, each owner should sign.
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