UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 28, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER 333-25853
SYCAMORE NETWORKS, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3410558
State or other jurisdiction (I.R.S. Employer
Of incorporation or organization) Identification Number)
150 Apollo Drive
Chelmsford, MA 01824
(978) 250-2900
(Address Including Zip Code and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) Yes X No ___, and (2) has been
subject to such filing requirements for the past 90 days. Yes X No___ .
The number of shares outstanding of the Registrant's Common Stock as of May 31,
2001 was 273,490,302.
Sycamore Networks, Inc.
Index
- -----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of April 28, 2001 and July 31, 2000 3
Consolidated Statements of Operations for the three and nine months
ended April 28, 2001 and April 29, 2000 4
Consolidated Statements of Cash Flows for the nine month
ended April 28, 2001 and April 29, 2000 5
Notes to Consolidated Financial Statement 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation 11
Item 3. Quantitative and Qualitative Disclosure About Market Risk 26
Part II. Other Information
Item 1. Legal Proceedings 27
Item 2. Changes in Securities and Use of Proceeds 27
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 6. Exhibits and Reports on Form 8-K 27
Signature 29
Exhibit Index 30
-2-
Part I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
SYCAMORE NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
April 28, July 31,
2001 2000
----------------------------------
Assets
Current assets:
Cash and cash equivalents $ 294,999 $ 429,965
Marketable securities 447,949 710,398
Accounts receivable, net of allowance for doubtful accounts
of $604 and $0 at April 28, 2001 and July 31, 2000,
respectively 46,139 43,407
Inventories, net 44,850 39,739
Prepaids and other current assets 15,633 25,932
----------------------------------
Total current assets 849,570 1,249,441
Property and equipment, net 103,064 42,840
Marketable securities 595,255 376,740
Other assets 75,692 28,894
----------------------------------
Total assets $1,623,581 $1,697,915
==================================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 72,633 49,030
Accrued compensation 4,499 7,177
Accrued expenses 20,630 7,529
Accrued restructuring costs 78,166 -
Deferred revenue 16,125 29,708
Other current liabilities 9,346 8,866
----------------------------------
Total current liabilities 201,399 102,310
Long-term liabilities - 4,487
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; none issued or outstanding - -
Common stock, $.001 par value; 2,500,000,000 shares
authorized; 273,518,173 and 271,664,673 shares issued and
outstanding 274 272
Additional paid-in capital 1,730,350 1,720,565
Accumulated deficit (259,191) (21,675)
Notes receivable - (262)
Deferred compensation (54,942) (112,816)
Accumulated other comprehensive income 5,970 5,034
Treasury shares, at cost, 189,000 shares (279) -
----------------------------------
Total stockholders' equity 1,422,182 1,591,118
----------------------------------
Total liabilities and stockholders' equity $1,623,581 $1,697,915
==================================
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
SYCAMORE NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Nine Months Ended
------------------ -----------------
April 28, April 29, April 28, April 29,
2001 2000 2001 2000
--------------------------------------------------------------
Revenues........................................................ $ 54,203 $ 59,183 $ 323,894 $ 107,742
Cost of revenues (exclusive of the non-cash stock
compensation expense of $480, $371, $2,611 and $972)........... 132,254 31,367 275,504 57,103
--------------------------------------------------------------
Gross profit (loss)............................................. (78,051) 27,816 48,390 50,639
Operating expenses:
Research and development (exclusive of non-cash stock
compensation expense of $2,894, $2,137, $31,186 and
$4,378)..................................................... 44,407 19,564 122,400 41,781
Sales and marketing (exclusive of non-cash stock
compensation expense of $2,495, $1,401, $19,732 and
$4,087)..................................................... 22,213 8,162 61,483 16,570
General and administrative (exclusive of non-cash stock
compensation expense of $1,461, $891, $3,014 and
$2,017)..................................................... 4,419 2,869 13,038 5,589
Amortization of stock compensation.......................... 7,330 4,800 56,543 11,454
Acquisition costs........................................... - - 4,948 -
Restructuring charges and related asset impairments......... 81,926 - 81,926 -
--------------------------------------------------------------
Total operating expenses................................ 160,295 35,395 340,338 75,394
Loss from operations............................................ (238,346) (7,579) (291,948) (24,755)
Interest and other income, net.................................. 18,940 13,249 67,564 18,032
--------------------------------------------------------------
Income (loss) before income taxes............................... (219,406) 5,670 (224,384) (6,723)
Provision for income taxes...................................... 5,703 - 13,132 -
--------------------------------------------------------------
Net income (loss)............................................... $ (225,109) $ 5,670 $ (237,516) $ (6,723)
==============================================================
Basic net income (loss) per share............................... $ (0.94) $ 0.03 $ (1.01) $ (0.05)
Diluted net income (loss) per share............................. $ (0.94) $ 0.02 $ (1.01) $ (0.05)
Shares used in per-share calculation - basic.................... 240,492 207,085 235,483 148,953
Shares used in per-share calculation - diluted.................. 240,492 275,360 235,483 148,953
The accompanying notes are an integral part of the consolidated financial
statements.
-4-
SYCAMORE NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Nine Months Ended
-----------------
April 28, April 29,
2001 2000
--------------------------------
Cash flows from operating activities:
Net loss $ (237,516) $ (6,723)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Restructuring charges and related asset impairments 52,476 -
Depreciation and amortization 24,715 4,091
Amortization of stock compensation 56,543 11,454
Changes in operating assets and liabilities:
Accounts receivable (2,732) (19,063)
Inventories (40,589) (20,033)
Prepaids and other current assets 10,299 (8,214)
Deferred revenue (13,583) 31,554
Accounts payable 23,603 16,113
Accrued expenses and other liabilities 12,682 1,860
Accrued restructuring costs 78,166 -
--------------------------------
Net cash provided by (used in) operating activities (35,936) 11,039
--------------------------------
Cash flows from investing activities:
Purchases of property and equipment (101,108) (22,366)
Purchases of marketable securities (472,768) (1,027,718)
Maturities of marketable securities 517,638 201,303
Increase in other assets (46,798) (1,070)
--------------------------------
Net cash used in investing activities (103,036) (849,851)
--------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 5,803 1,490,265
Proceeds from notes payable 262 489
Purchase of treasury stock (279) -
Payments on notes payable (1,780) (5,234)
--------------------------------
Net cash provided by financing activities 4,006 1,485,520
--------------------------------
Net (decrease) increase in cash and cash
Equivalents (134,966) 646,708
Adjustment to conform fiscal year of Sirocco - 3,440
Cash and cash equivalents, beginning of period 429,965 40,869
--------------------------------
Cash and cash equivalents, end of period $ 294,999 $ 691,017
================================
The accompanying notes are an integral part of the consolidated financial
statements.
-5-
SYCAMORE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF THE BUSINESS
Sycamore Networks, Inc. (the "Company") develops and markets intelligent optical
networking products that enable service providers to quickly and
cost-effectively provide bandwidth and create new high-speed data services. To
date, the Company has principally marketed its products in North America and
Europe.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
All historical financial information has been restated to reflect the
acquisition of Sirocco Systems, Inc. in the first quarter of fiscal 2001, which
was accounted for as a pooling of interests.
The accompanying financial data as of April 28, 2001 and for the three and nine
months ended April 28, 2001 and April 29, 2000 has been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. However, the Company believes that the disclosures are
adequate to make the information presented not misleading. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's Current
Report on Form 8-K for the fiscal year ended July 31, 2000 filed on May 12,
2001.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present a fair statement of financial
position as of April 28, 2001, results of operations for the three and nine
months ended April 28, 2001 and April 29, 2000 and cash flows for the nine
months ended April 28, 2001 and April 29, 2000 have been made. The results of
operations for the three and nine months ended April 28, 2001 are not
necessarily indicative of the operating results for the full fiscal year or any
future periods.
3. NET INCOME (LOSS) PER SHARE AND PRO FORMA NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing the net income (loss)
for the period by the weighted-average number of common shares outstanding
during the period, less the weighted-average number of shares of common stock
that are subject to repurchase. Diluted net income (loss) per share is computed
by dividing the net income (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.
All share and per share data presented reflects two three-for-one stock splits
effected in August 1999 and February 2000.
-6-
The following table sets forth the computation of basic and diluted net income
(loss) per share, (in thousands, except per share data):
Three Months Ended Nine Months Ended
------------------ -----------------
April 28, April 29, April 28, April 29,
2001 2000 2001 2000
---- ---- ---- ----
Numerator:
Net income (loss).................................................... $(225,109) $ 5,670 $(237,516) $ (6,723)
Denominator:
Weighted average common shares outstanding....................... 273,359 263,789 272,894 209,167
Weighted average common shares outstanding subject to
repurchase.................................................... (32,867) (56,704) (37,411) (60,214)
--------- -------- --------- ---------
Shares used in per share calculation - basic......................... 240,492 207,085 235,483 148,953
========= ======== ========= =========
Weighted average common shares outstanding...................... 240,492 263,789 235,483 148,953
Weighted average common stock equivalents....................... - 11,571 - -
--------- -------- --------- ---------
Shares used in per share calculation - diluted....................... 240,492 275,360 235,483 148,953
========= ======== ========= =========
Net income (loss) per share:
Basic........................................................... $ (0.94) $ 0.03 $ (1.01) $ (0.05)
========= ======== ========= =========
Diluted......................................................... $ (0.94) $ 0.02 $ (1.01) $ (0.05)
========= ======== ========= =========
Options to purchase 2,230,510 shares of common stock at an average exercise
price of $115.69 have not been included in the computation of diluted net income
per share for the three months ended April 29, 2000 as their effect would have
been anti-dilutive.
4. INVENTORY
Inventory consisted of the following (in thousands):
April 28, July 31,
2001 2000
---------------------
Raw materials $25,899 $14,340
Work in process 11,669 3,685
Finished goods 7,282 21,714
---------------------
$44,850 $39,739
=====================
5. COMMON STOCK
In December 2000, the stockholders of the Company approved an increase in the
number of authorized shares of common stock of the Company from 1,500,000,000 to
2,500,000,000 and approved an amendment to the Company's 1999 Stock Incentive
Plan to (a) increase the number of shares of common stock reserved for issuance
under the plan by 25,000,000, and (b) revise the automatic annual share increase
provision of the plan so that the number of shares of Company common stock
reserved for issuance under the plan will automatically increase on the first
day of each fiscal year of the Company by an amount equal to the lesser of (i)
18,000,000 shares, (ii) five percent (5%) of the number of shares of Company
common stock outstanding on the first day of each fiscal year of the Company, or
(iii) such lesser number of shares as determined by the Company's Board of
Directors.
In March 2001, the Company issued a fully vested and exercisable warrant to
purchase 150,000 shares of common stock at $11.69 per share with a two year term
in exchange for general and administrative services. The Company valued the
warrant using the Black-Scholes model with the following assumptions: 6.5% risk
free interest rate, 90% expected volatility, and a 2 year expected life, and
recorded a charge for stock-based compensation of $895,000 in the three month
period ended April 28, 2001.
-7-
6. COMPREHENSIVE INCOME (LOSS)
The Company reports comprehensive income (loss) in accordance with Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS
130). The components of comprehensive income (loss) are as follows (in
thousands):
Three Months Ended Nine Months Ended
------------------ -----------------
April 28, 2001 April 29, 2000 April 28, 2001 April 29, 2000
-------------------------------------------------------------------------------
Net income (loss) $(225,109) $ 5,670 $(237,516) $ (6,723)
Other comprehensive income:
Unrealized gain on investments 433 2,636 936 2,613
-------------------------------------------------------------------------------
Comprehensive income (loss) $(224,676) $ 8,306 $(236,580) $ (4,110)
===============================================================================
7. ACQUISITION
On September 7, 2000, the Company acquired Sirocco Systems, Inc. ("Sirocco") in
a transaction accounted for as a pooling of interests. An aggregate of
approximately 28.6 million shares of Sycamore common stock were either exchanged
for all outstanding shares of Sirocco or reserved for common stock issuable
under outstanding Sirocco stock options assumed by the Company in the
transaction. Acquisition costs related to this transaction were $4.9 million for
the nine months ended April 28, 2001.
8. RESTRUCTURING CHARGES AND RELATED ASSET IMPAIRMENTS
As a result of unfavorable economic conditions and reduced capital spending by
telecommunications service providers, the Company implemented a restructuring
program in the third quarter of fiscal 2001. The restructuring program is
designed to reduce expenses, optimize profitability and align resources with
long-term growth opportunities. This restructuring program includes a workforce
reduction, consolidation of excess facilities, and the restructuring of certain
business functions to eliminate non-strategic products and overlapping feature
sets. This includes the discontinuance of the SN 6000 Intelligent Optical
Transport product and the bi-directional capabilities of the SN 8000 Intelligent
Optical Network Node.
As a result of the restructuring program, the Company recorded restructuring
charges and related asset impairments of $81.9 million classified as operating
expenses and an additional excess inventory charge of $84.0 million classified
as cost of revenues. The following paragraphs provide detailed information
relating to the restructuring charges and related asset impairments which were
recorded during the third quarter of fiscal 2001.
Workforce reduction
The restructuring program will result in the reduction of approximately 132
employees across all business functions and geographic regions. The workforce
reductions were substantially completed in the third quarter of fiscal 2001. The
Company recorded a workforce reduction charge of approximately $4.2 million
relating primarily to severance and fringe benefits. In addition the number of
temporary and contract workers employed by the Company were also reduced.
Consolidation of facilities and certain other costs
The Company recorded a restructuring charge of $24.4 million relating to the
consolidation of excess facilities and certain other costs. The consolidation of
excess facilities relates to business activities that have been exited or
restructured. The Company recorded a restructuring charge of $12.2 million
primarily related to lease terminations and non-cancelable lease costs. The
Company also recorded other restructuring costs of $12.2 million relating
primarily to administrative expenses and professional fees incurred in
connection with the restructuring activities.
-8-
Inventory and asset write downs
The Company recorded a restructuring charge of $137.3 million relating to the
write-down of inventory to its net realizable value and the write down of
certain assets which became impaired as a result of the decision to eliminate
non-strategic products and overlapping feature sets. The restructuring charge
includes $84.0 million of inventory write-downs which are recorded as part of
cost of revenues. The restructuring charge also includes $53.3 million of
impaired assets which largely relate to the rationalization of the Company's
future product offerings and contract settlements associated with the
discontinuance of certain product lines.
A summary of the restructuring charges and related asset impairments is outlined
as follows (in thousands):
Total
Restructuring Cash Non-cash Accrual
Charge Payments Charges Balance
------------- -------- -------- ---------
Work-force reductions $ 4,174 $ 1,329 $ 829 $ 2,016
Facility consolidations and certain other costs 24,437 - 600 23,837
Inventory and assets write-downs 137,285 - 84,972 52,313
--------- -------- -------- --------
Ending balance at April 28, 2001 $ 165,896 $ 1,329 $ 86,401 $ 78,166
========= ======== ======== ========
The remaining cash expenditures relating to workforce reductions will be
substantially paid in the fourth quarter of fiscal 2001. Facility consolidation
charges will be paid over the respective lease terms through fiscal 2007. The
Company expects to substantially complete its restructuring program during the
next nine months.
9. INCOME TAX
Due to cumulative net losses and the restructuring charge, the Company does not
expect to pay income taxes for the current year and accordingly, the provision
for income taxes recorded for the six months ended January 27, 2001 was
reversed. The Company believes it is more likely than not that net deferred
tax assets will not be realized and accordingly, a valuation allowance in the
amount of $13.1 million has been established during the three months ended April
28, 2001 to offset net deferred tax assets.
10. RECENT ACCOUNTING PRONOUNCEMENT
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" (SAB 101). SAB 101 summarizes certain areas
of the Staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. In June 2000, the SEC issued SAB
No. 101B which defers the implementation date of SAB 101 until no later than the
fourth fiscal quarter of fiscal years beginning after December 15, 1999, with
earlier adoption encouraged. The Company is required to and will adopt SAB 101
in the fourth quarter of fiscal 2001. The Company believes that its current
revenue recognition policy complies with SAB 101 and does not expect the
adoption of SAB 101 to have a material impact on its financial position or
results of operations.
11. SUBSEQUENT EVENT
On May 18, 2001 the Company announced an offer to exchange outstanding employee
stock options having an exercise price of $7.25 or more per share in return for
restricted stock and new stock options to be granted by the Company, which offer
was subsequently amended on June 5, 2001 (the "Exchange Offer"). Pursuant to the
Exchange Offer, in exchange for eligible options, an option holder will receive
a number of shares of restricted stock equal to one-tenth (1/10) of the total
number of shares subject to the options tendered by the option holder and
accepted for exchange and new options exercisable for a number of shares of
common stock equal to nine-tenths (9/10) of the total number of shares subject
to the options tendered by the option holder and accepted for exchange;
provided, however, that to address potential adverse tax consequences for
employees who are tax residents of Canada, France, Germany, Japan, Spain,
Sweden, Switzerland or the United Kingdom, such employees may choose to forego
the restricted stock grants
-9-
and receive all stock options. The restricted stock is expected to be issued no
later than June 26, 2001 and the new options are expected to be granted no
earlier than six months and one day from June 20, 2001. Until the restricted
stock vests, such shares are subject to forfeiture in the event the employee
leaves the Company. Generally, the restricted stock vests over four years, with
25% of the shares vesting one year after the date of grant and the remaining 75%
vesting quarterly thereafter. The new options generally vest over three years,
with 8.34% of the options vesting on the date of grant and the remaining 91.66%
vesting quarterly thereafter subject to certain length of service provisions.
The new options will have an exercise price equal to the fair market value of
the Company's common stock on the date of the grant of the new options, as
determined by the last reported sale price of the common stock on the Nasdaq
National Market on the grant date. The Exchange Offer is currently scheduled to
expire on June 19, 2001. In accordance with FASB Interpretation No. 44,
"Accounting for Certain Transactions Involving Stock Compensation-an
Interpretation of APB Opinion No. 25," the Company expects to record certain
deferred compensation costs in the fourth quarter of fiscal 2001 for the
intrinsic value of the restricted stock on the date of grant, calculated using
the closing price of the Company's stock on such date. The deferred compensation
costs will be amortized ratably over the vesting periods of the restricted
stock.
-10-
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 but not limited to the rate of product purchases by
current and prospective customers; the commercial success of our line of
intelligent optical networking products; our reliance on a limited number of
customers; new product introductions and enhancements by us and our competitors;
the length and variability of the sales cycles for our products; competition;
manufacturing and sourcing risks; variations in our quarterly results; general
economic conditions including, stock market volatility as well as conditions
specific to the telecommunications, internet and related industries; and the
other factors discussed in this Form 10-Q and other reports filed by us from
time to time with the Securities and Exchange Commission. We disclaim any
intention or obligation to update or revise any forward-looking statements,
whether as a result of new information, future results or otherwise. Forward
looking statements include statements regarding our expectations, beliefs,
intentions or strategies regarding the future and can be identified by
forward-looking words such as "anticipate," "believe," "could," "estimate,"
"expect," "intend," "may," "should," "will," and "would" or similar words.
OVERVIEW
We develop and market intelligent optical networking products that transport
voice and data traffic over wavelengths of light. Our products enable service
providers to quickly and cost-effectively provide bandwidth and create new high-
speed voice and data services. Our products and product plans include optical
transport, access and switching systems and end-to-end optical networking
management solutions. We began shipment of our first product in May 1999 and to
date, have principally marketed our products in North America and Europe.
On September 7, 2000, we acquired Sirocco Systems, Inc. ("Sirocco") in a
transaction accounted for as a pooling of interests. An aggregate of
approximately 28.6 million shares of Sycamore common stock were either exchanged
for all outstanding shares of Sirocco or reserved for common stock issuable
under outstanding Sirocco stock options assumed by us in the transaction. All
periods presented have been restated to include Sirocco's results of operations,
financial position and cash flows.
In recent months, unfavorable economic conditions have caused a rapid and
significant decrease in capital spending by telecommunications service
providers. As a result, emerging service providers, which had been the early
adopters of our technology, are no longer able to continue to fund aggressive
deployments of equipment within their networks. Incumbent service providers also
have slowed their capital expenditures significantly. In response to these
unfavorable economic conditions, the Company implemented a restructuring program
designed to decrease the Company's business expenses to optimize profitability
and align resources with long-term growth opportunities. In the third quarter,
the Company recorded a business-restructuring charge of $165.9 million.
RESULTS OF OPERATIONS
REVENUES
Revenues were $54.2 million for the three months ended April 28, 2001 compared
to $59.2 million for the same period in fiscal 2000. Revenues were $323.9
million for the nine months ended April 28, 2001 compared to $107.7 million for
the same period in fiscal 2000. The decrease in revenues for the three months
ended April 28, 2001 was primarily due to a reduction in capital spending by our
customers and component limitations associated with our SN 16000 product.
Revenues increased for the nine months ended April 28, 2001 primarily due to a
broader product base, including the SN 16000 and the SN 3000 and increased
market acceptance of our products. For the three months ended April 28, 2001,
three customers represented more than ten percent of our revenues on an
individual basis, compared to one customer for the same period in fiscal 2000.
For the nine months ended April 28, 2001, two customers represented more than
ten percent of our revenues on an individual basis, compared to one customer for
the same period in fiscal 2000. There can be no certainty as to the severity or
duration of the current economic downturn and its impact on our future revenues.
-11-
COST OF REVENUES
Cost of revenues increased $100.9 million to $132.3 million for the three months
ended April 28, 2001 compared to $31.4 million for the same period in fiscal
2000. Cost of revenues increased $218.4 million to $275.5 million for the nine
months ended April 28, 2001 compared to $57.1 million for the same period in
fiscal 2000. The increase in cost of revenues for the three months ended April
28, 2001 was primarily due to the impact of the inventory write-down of $84.0
million to net realizable value associated with the consolidation and
elimination of certain product lines. Excluding the restructuring charge, cost
of revenues as a percentage of revenues for the three months and nine months
ended April 29, 2001 would have been 89% and 59%, respectively. Cost of revenues
as a percentage of revenue was 53% for the three and nine months ended April 29,
2000. Cost of revenues as a percentage of revenues increased in the third
quarter of fiscal 2001 due to decreased revenues, coupled with increased
manufacturing overhead and customer service costs.
We currently anticipate that the cost of revenue and the resulting gross margin
may be adversely affected by several factors, including the demand for our
products, new product introductions, component limitations, the mix of products
sold, competitive pricing and increased investment in engineering, furnishing,
installation and testing (EFI&T) services, which could adversely affect our
operating results.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development ("R&D") expenses increased $24.8 million to $44.4
million for the three months ended April 28, 2001 from $19.6 million for the
same period in fiscal 2000. Research and development expenses increased $80.6
million to $122.4 million for the nine months ended April 28, 2001 from $41.8
million for the same period in fiscal 2000. The increase in R&D expenses was
primarily due to costs associated with an increase in personnel and
personnel-related expenses, and increases in non-recurring engineering costs and
prototype expenses for the design and development of new products as well as
enhancements to existing products.
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased $14.1 million to $22.2 million for the
three months ended April 28, 2001 from $8.2 million for the same period in
fiscal 2000. Sales and marketing expenses increased $44.9 million to $61.5
million for the nine months ended April 28, 2001 from $16.6 million for the same
period in fiscal 2000. The increase in expenses reflect the hiring of additional
sales and marketing personnel, sales based commissions, additional office space
and marketing program costs, including web development, trade shows and new
product launch activities.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased $1.6 million to $4.4 million for
the three months ended April 28, 2001 from $2.9 million for the same period in
fiscal 2000. General and administrative expenses increased $7.5 million to $13.0
million for the nine months ended April 28, 2001 from $5.6 million for the same
period in fiscal 2000. The increase in expenses reflects the hiring of
additional general and administrative personnel and related expenses.
AMORTIZATION OF STOCK COMPENSATION
Amortization of stock compensation expense increased $2.5 million to $7.3
million for the three months ended April 28, 2001 from $4.8 million for the same
period in fiscal 2000. Amortization of stock compensation increased $45.1
million to $56.5 million for the nine months ended April 28, 2001 from $11.5
million for the same period in fiscal 2000. Amortization of stock compensation
expense primarily resulted from the granting of stock options and restricted
shares with exercise or sale prices which were deemed to be below fair market
value as well as the granting of options to non-employees and consultants. The
increase for the nine months ended April 28, 2001 is primarily due to the
accelerated vesting of certain restricted stock and stock options in connection
with our merger with Sirocco, which represented approximately $36.3 million of
the increase for the period. Amortization of stock compensation is expected to
impact our reported results of operations through the third quarter of fiscal
2005. In March 2001, we issued a two-year warrant to purchase 150,000 shares of
common stock at $11.69 per share, exercisable immediately in exchange for
general and administrative services. We valued the warrant using the
Black-Scholes model with the following assumptions: 6.5% risk free interest
rate, 90% expected volatility, and a 2 year expected life, and recorded a charge
for stock compensation of $895,000 in the three month period ended April 28,
2001.
-12-
As described in Note 11 to our consolidated financial statements included in
this Form 10-Q, on May 18, 2001 the Company announced an offer to exchange
outstanding employee stock options having an exercise price of $7.25 or more per
share in return for restricted stock and new stock options to be granted by the
Company, which offer was subsequently amended on June 5, 2001 (the "Exchange
Offer"). Pursuant to the Exchange Offer, in exchange for eligible options, an
option holder will receive a number of shares of restricted stock equal to
one-tenth (1/10) of the total number of shares subject to the options tendered
by the option holder and accepted for exchange and new options exercisable for a
number of shares of common stock equal to nine-tenths (9/10) of the total number
of shares subject to the options tendered by the option holder and accepted for
exchange; provided, however, that to address potential adverse tax consequences
for employees who are tax residents of Canada, France, Germany, Japan, Spain,
Sweden, Switzerland or the United Kingdom, such employees may choose to forego
the restricted stock grants and receive all stock options. The restricted stock
is expected to be issued no later than June 26, 2001 and the new options are
expected to be granted no earlier than six months and one day from June 20,
2001. Until the restricted stock vests, such shares are subject to forfeiture in
the event the employee leaves the Company. Generally, the restricted stock vests
over four years, with 25% of the shares vesting one year after the date of grant
and the remaining 75% vesting quarterly thereafter. The new options generally
vest over three years, with 8.34% of the options vesting on the date of grant
and the remaining 91.66% vesting quarterly thereafter subject to certain length
of service provisions. The new options will have an exercise price equal to the
fair market value of the Company's common stock on the date of the grant of the
new options, as determined by the last reported sale price of the common stock
on the Nasdaq National Market on the grant date. The Exchange Offer is currently
scheduled to expire on June 19, 2001. In accordance with FASB Interpretation No.
44, "Accounting for Certain Transactions Involving Stock Compensation-an
Interpretation of APB Opinion No. 25," the Company expects to record certain
deferred compensation costs in the fourth quarter of fiscal 2001 for the
intrinsic value of the restricted stock on the date of grant, calculated using
the closing price of the Company's stock on such date. The deferred compensation
costs will be amortized ratably over the vesting periods of the restricted stock
ACQUISITION COSTS
In connection with the acquisition of Sirocco in the first quarter of fiscal
2001, we incurred $4.9 million of acquisition costs for legal, accounting and
professional services.
RESTRUCTURING CHARGES AND RELATED ASSET IMPAIRMENTS
As a result of unfavorable economic conditions and reduced capital spending by
telecommunications service providers, we implemented a restructuring program in
the third quarter of fiscal 2001. The restructuring program is designed to
reduce expenses, optimize profitability and align resources with long-term
growth opportunities. This restructuring program includes a workforce reduction,
consolidation of excess facilities, and the restructuring of certain business
functions to eliminate non-strategic products and overlapping feature sets. This
includes the discontinuance of the SN 6000 Intelligent Optical Transport product
and the bi-directional capabilities of the SN 8000 Intelligent Optical Network
Node.
As a result of the restructuring program, we recorded restructuring charges and
related asset impairments of $81.9 million classified as operating expenses and
an additional excess inventory charge of $84.0 million classified as cost of
revenues. We expect pretax savings of approximately $50 million in operating
expenses in connection with the restructuring program and certain cost reduction
initiatives. The pretax savings will be phased-in beginning the fourth quarter
of fiscal 2001.
The following paragraphs provide detailed information relating to the
restructuring charges and related asset impairments which were recorded during
the third quarter of fiscal 2001.
Workforce reduction
The restructuring program will result in the reduction of approximately 132
regular employees across all business functions, and geographic regions. The
workforce reductions were substantially completed in the third quarter of fiscal
2001. We recorded a workforce reduction charge of approximately $4.2 million
relating primarily to severance and fringe benefits. In addition the number of
temporary and contract workers employed by us were also reduced.
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Consolidation of facilities and certain other costs
We recorded a restructuring charge of $24.4 million relating to consolidation of
excess facilities and certain other costs. The consolidation of excess
facilities relates to business activities that have been exited or restructured.
We recorded a restructuring charge of $12.2 million primarily related to lease
terminations and non-cancelable lease costs. We also recorded other
restructuring costs of $12.2 million relating primarily to administrative
expenses and professional fees incurred in connection with the restructuring
activities.
Inventory and asset write downs
We recorded a restructuring charge of $137.3 million relating to the write-down
of inventory to its net realizable value and the write down of certain assets
which became impaired as a result of the decision to eliminate non-strategic
products and overlapping feature sets. The restructuring charge includes $84.0
million of inventory write-downs which are recorded as part of cost of revenues.
The restructuring charge also includes $53.3 million of impaired assets which
largely relate to the rationalization of our future product offerings and
contract settlements associated with the discontinuance of certain product
lines.
A summary of the restructuring charges and related asset impairments is outlined
as follows (in thousands):
Total
Restructuring Cash Non-cash Accrual
Charge Payments Charges Balance
------------- -------- -------- ---------
Work-force reductions $ 4,174 $ 1,329 $ 829 $ 2,016
Facility consolidations and certain other costs 24,437 - 600 23,837
Inventory and assets write-downs 137,285 - 84,972 52,313
--------- -------- -------- ---------
Ending balance at April 28, 2001 $ 165,896 $ 1,329 $ 86,401 $ 78,166
========= ======== ======== =========
The remaining cash expenditures relating to workforce reductions will be
substantially paid in the fourth quarter of fiscal 2001. Facility consolidation
charges will be paid over the respective lease terms through fiscal 2007. We
expect to substantially complete our restructuring program during the next nine
months.
INTEREST AND OTHER INCOME, NET
Interest and other income, net increased $5.7 million to $18.9 million for the
three months ended April 28, 2001 from $13.2 million for the same period in
fiscal 2000. Interest and other income, net increased $50.0 million to $67.6
million for the nine months ended April 28, 2001 from $18.0 million for same
period in fiscal 2000. The increase in interest and other income primarily
reflects the invested proceeds of our two public offerings within fiscal 2000.
PROVISION FOR INCOME TAXES
The provision for income taxes was $5.7 million and $13.1 million for the three
and nine months ended April 28, 2001. Due to cumulative net losses and the
restructuring charge, we do not expect to pay income taxes for the current year
and accordingly, the provision for income taxes recorded for the six months
ended January 27, 2001 was reversed. We believe it is more likely than not that
net deferred tax assets will not be realized and accordingly, a valuation
allowance in the amount of $13.1 million has been established during the three
months ended April 28, 2001 to offset net deferred tax assets. We did not
provide for income taxes for the three and nine months ended April 29, 2000 due
to cumulative net losses for the nine months ended April 29, 2000.
-14-
LIQUIDITY AND CAPITAL RESOURCES
Prior to our initial public offering in October 1999, we financed our operations
primarily through private sales of our capital stock totaling approximately
$84.7 million and through borrowings on long-term debt agreements for the
purchase of capital equipment. In fiscal 2000, we completed two public
offerings, for which we sold 30.9 million shares of common stock and generated
net proceeds of $1.5 billion. We primarily invest excess funds in short-term
money market funds, commercial paper, government and non-government debt
securities. As of April 28, 2001, we had $1.3 billion in cash, cash equivalents
and marketable securities.
Net cash used in operating activities for the nine months ended April 28, 2001
was $35.9 million, compared to cash provided by operating activities of $11.0
million for the nine months ended April 29, 2000. The decrease in net cash
provided by operating activities is primarily due to increased inventory,
accounts receivable, and an increased net loss adjusted to reflect non-cash
charges for amortization of stock compensation, depreciation, restructuring and
asset impairment charges, partially offset by increased accounts payable and
accrued expenses.
Net cash used in investing activities was $103.0 million for the nine months
ended April 28, 2001, compared to $849.9 million for the nine months ended April
29, 2000. The decrease in net cash used in investing activities reflects a
decrease in net purchases of available-for-sale marketable securities, offset by
the increased purchases of property and equipment, primarily for computers and
test equipment for our development and manufacturing activities, as well as the
purchase of land in Tyngsboro, Massachusetts, where our future corporate
headquarters will be established.
Net cash provided by financing activities was $4.0 million for the nine months
ended April 28, 2001, compared to $1.5 billion for the nine months ended April
29, 2000. The decrease in net cash provided by financing activities reflects
decreased proceeds from the issuance of common stock, offset by decreased
payments on notes payable. In the third quarter of fiscal 2001, we purchased
189,000 shares of our common stock which are held in treasury for $279,000 in
accordance with certain repurchase rights for unvested shares of restricted
stock upon certain employees' cessation of service with the Company.
Increasingly, as a result of the financial demands of major network deployments,
service providers are looking to their suppliers for financing assistance. From
time to time we may provide or commit to extend credit or credit support to our
customers as we consider appropriate in the course of our business, considering
our resources. Currently, we have customer financing commitments of
approximately $200 million, subject to draw down over two to three years and
completion of definitive lease financing documentation. As of April 28, 2001,
$66 million has been drawn down under these financing arrangements. Depending on
market conditions, we may seek to factor these arrangements to financial
institutions and investors to free up our capital and reduce the amount of our
commitments for such arrangements. Our ability to provide customer financing is
limited and depends on a number of factors, including our capital structure, the
level of our available credit and our ability to factor commitments. The
extension of financing to our customers will limit the capital that we have
available for other uses.
Although we believe that our current cash will be sufficient to fund our
operations for at least the next 12 months, there can be no assurance that we
will not require additional financing within this time frame or that such
additional funding, if needed, will be available on terms acceptable to us or at
all.
RISKS RELATED TO OUR BUSINESS
WE ARE ENTIRELY DEPENDENT ON OUR LINE OF INTELLIGENT OPTICAL NETWORKING PRODUCTS
AND OUR FUTURE REVENUE DEPENDS ON THEIR COMMERCIAL SUCCESS
Our future growth depends on the commercial success of our line of intelligent
optical networking products. As of April 28, 2001, our SN 3000 Optical Access
Switch, SN 6000 Intelligent Optical Transport product, SN 8000 Intelligent
Optical Network Node, Silvx Manager Network Management System, SN 16000
Intelligent Optical Switch and SN 10000 Intelligent Optical Transport System are
the only products that have been shipped to customers. As part of the
restructuring we announced in the third quarter of fiscal 2001, we are
consolidating our transport product offerings and development programs to
eliminate non-strategic products and overlapping feature sets. This includes
discontinuance of the SN 6000 Intelligent Optical Transport product and the bi-
directional capabilities of the SN 8000 Intelligent Optical Network Node. We
cannot assure you that we will be successful in completing the development,
-15-
introduction or production manufacturing of new products or enhancing our
existing products. Failure of our current or planned products to operate as
expected could delay or prevent their adoption. If our target customers do not
adopt, purchase and successfully deploy our current and planned products, our
results of operations could be adversely affected.
WE EXPECT THAT SUBSTANTIALLY ALL OF OUR REVENUE WILL BE GENERATED FROM A LIMITED
NUMBER OF CUSTOMERS, AND OUR REVENUES ARE SUBSTANTIALLY DEPENDENT UPON SALES OF
PRODUCTS TO THESE CUSTOMERS
We currently have a limited number of customers, one of whom, Williams
Communications, has accounted for a majority of our revenues to date. As a
result of unfavorable economic and other conditions, several of our largest
customers to date have slowed their capital expenditures and decreased their
rate of ordering products from us. In our third quarter of fiscal 2001, sales to
Williams declined in absolute dollars and as a percentage of our revenues. In
the quarter, three customers each accounted for over 10% of our revenues. None
of our customers are contractually committed to purchase any minimum quantities
of products from us. We expect that in the foreseeable future a majority of our
revenues will continue to depend on sales of our intelligent optical networking
products to a limited number of customers. The rate at which our current and
prospective customers purchase products from us will depend, in part, on their
success in selling communications services based on these products to their own
customers. Any failure of current or prospective customers to purchase products
from us for any reason, including any determination not to install our products
in their networks or a downturn in their business, would seriously harm our
financial condition or results of operations.
WE ARE EXPOSED TO GENERAL ECONOMIC CONDITIONS
As a result of unfavorable economic conditions and reduced capital spending by
telecommunications service providers, our sales declined significantly in our
third quarter of fiscal 2001. This economic downtown has also resulted in longer
selling cycles with extended trial periods for new equipment purchases. Our
business and results of operations will be seriously harmed if current economic
conditions do not improve.
WE EXPECT GROSS MARGINS TO FLUCTUATE
We currently expect gross margins may continue to be adversely affected by the
economic downturn coupled with demand for our products, new product
introductions, the mix of products sold, competitive pricing and increased
investment in our engineering, furnishing, installation, and testing (EFI&T)
services.
OUR FAILURE TO GENERATE SUFFICIENT REVENUES WOULD PREVENT US FROM ACHIEVING
PROFITABILITY
In the third quarter of fiscal 2001, our revenues declined considerably and we
incurred a significant loss. As of April 28, 2001, we had an accumulated deficit
of $259.2 million. We cannot assure you that our revenues will increase or that
we will generate sufficient revenues to achieve or sustain profitability. While
we have implemented a restructuring program designed to decrease the Company's
business expenses, we will continue to have large fixed expenses and we expect
to continue to incur significant sales and marketing, product development,
customer support and service, administrative and other expenses. As a result, we
need to generate significantly higher revenue to achieve and maintain
profitability.
THE UNPREDICTABILITY OF OUR QUARTERLY RESULTS MAY ADVERSELY AFFECT THE TRADING
PRICE OF OUR COMMON STOCK
Our revenues and operating results will vary significantly from quarter to
quarter due to a number of factors, many of which are outside of our control and
any of which may cause our stock price to fluctuate. The primary factors that
may affect us include the following:
* fluctuation in demand for intelligent optical networking products;
* the timing and size of sales of our products;
-16-
* the length and variability of the sales cycle for our products;
* the timing of recognizing revenue and deferred revenue;
* new product introductions and enhancements by our competitors and
ourselves;
* changes in our pricing policies or the pricing policies of our competitors;
* our ability to develop, introduce and ship new products and product
enhancements that meet customer requirements in a timely manner;
* delays or cancellations by customers;
* satisfaction of post delivery obligations, including installation and
acceptance;
* our ability to obtain sufficient supplies of sole or limited source
components;
* increases in the prices of the components we purchase;
* our ability to attain and maintain production volumes and quality levels
for our products;
* manufacturing lead times;
* the timing and level of prototype expenses;
* costs related to acquisitions of technology or businesses;
* employer payroll taxes to be paid on an employee's gain on stock options
exercised (such payroll taxes are recorded as operating expenses and could
be material based upon the number of optionees who exercise their options
and the price of our common stock);
* general economic conditions as well as those specific to the
telecommunications; internet and related industries.
While we have implemented a restructuring and cost control program, we plan to
continue to invest in our business, to continue to maintain a strong product
development and customer support infrastructure so as to be poised to move
quickly when economic conditions recover. Our operating expenses are largely
based on anticipated organizational growth and a high percentage of our expenses
are, and will continue to be, fixed. As a result, a delay in generating or
recognizing revenue for the reasons set forth above, or for any other reason,
could cause significant variations in our operating results from quarter to
quarter and could result in substantial operating losses.
Due to the foregoing factors, we believe that quarter-to-quarter comparisons of
our operating results are not a good indication of our future performance. You
should not rely on our results or growth for one quarter as any indication of
our future performance. In the most recent quarter, our revenue declined
significantly from prior levels, and a disproportionate share of the revenue
occurred in the last month of the quarter. Occurrences of the foregoing factors
are extremely difficult to predict. In addition, our ability to forecast our
future business has been significantly impaired by the general economic
downturn. As a result, it is likely that in some future period our operating
results may be below the expectations of public market analysts and investors or
that our net sales may grow at a slower quarter over quarter percentage rate. In
this event, the price of our common stock could decrease.
OUR PRODUCTS ARE COMPLEX AND ARE DEPLOYED IN COMPLEX ENVIRONMENTS AND MAY HAVE
ERRORS OR DEFECTS THAT WE FIND ONLY AFTER FULL DEPLOYMENT, WHICH COULD SERIOUSLY
HARM OUR BUSINESS
Our intelligent optical networking products are complex and are designed to be
deployed in large and complex networks. Because of the nature of the products,
they can only be fully tested when completely deployed in very large networks
with high amounts of traffic. Our customers may discover errors or defects in
the hardware or the software, or the product may not operate as expected after
it has been fully deployed. From time to time, there may be interruptions or
delays in the deployment of our products due to product performance problems or
post delivery obligations. If we
-17-
are unable to fix errors or other problems, or if our customers experience
interruptions or delays that cannot be promptly resolved, we could experience:
* loss of or delay in revenues and loss of market share;
* loss of customers;
* failure to attract new customers or achieve market acceptance;
* diversion of development resources;
* increased service and warranty costs;
* delays in collecting accounts receivable;
* legal actions by our customers; and
* increased insurance costs, any of which could seriously harm our financial
condition or results of operations.
THE LONG AND VARIABLE SALES CYCLES FOR OUR PRODUCTS MAY CAUSE REVENUES AND
OPERATING RESULTS TO VARY SIGNIFICANTLY FROM QUARTER TO QUARTER
A customer's decision to purchase our intelligent optical networking products
involves a significant commitment of its resources and a lengthy evaluation,
testing and product qualification process. As a result, our sales cycle is
lengthy and recently has increased in length.. Throughout the sales cycle, we
spend considerable time and expense educating and providing information to
prospective customers about the use and features of our products. Even after
making a decision to purchase, we believe that our customers will deploy the
products slowly and deliberately. Timing of deployment can vary widely and
depends on the economic environment of our customers, the skills of our
customers, the size of the network deployment, the complexity of our customers'
network environment and the degree of hardware and software configuration
necessary. Customers with complex networks usually expand their networks in
large increments on a periodic basis. Accordingly, we may receive purchase
orders for significant dollar amounts on an irregular and unpredictable basis.
Because of our limited operating history and the nature of our business, we
cannot predict these sales and deployment cycles. The long sales cycles, as well
as our expectation that customers will tend to sporadically place large orders
with short lead times, may cause our revenues and results of operations to vary
significantly and unexpectedly from quarter to quarter.
OUR LIMITED OPERATING HISTORY MAKES FORECASTING DIFFICULT
We were founded in February 1998. We shipped our first product in May 1999. As a
result, there is limited meaningful historical financial data upon which
investors may evaluate us and our prospects. We also have limited historical
financial data upon which to base our projected revenues. Our operating expenses
are largely based on anticipated revenue trends, and a high percentage of our
expenses are and will continue to be fixed. You should consider the risks and
difficulties frequently encountered by companies like ours in a new and rapidly
evolving market. Our ability to sell products and the level of success, if any,
we achieve depend, among other things, on the level of demand for intelligent
optical networking products, which is a new and rapidly evolving market. If we
do not achieve our expected revenue, our operating results will be below our
expectations and the expectations of our investors and market analysts, which
could cause the price of our common stock to decline.
WE MAY NOT BE SUCCESSFUL IF OUR CUSTOMER BASE DOES NOT GROW
Our future success will depend on our attracting additional customers. The
growth of our customer base could be adversely affected by:
* customer unwillingness to implement our new optical networking
architecture;
* any delays or difficulties that we may incur in completing the development,
introduction and production
-18-
manufacturing of our planned products or product enhancements;
* new product introductions by our competitors;
* any failure of our products to perform as expected; or
* any difficulty we may incur in meeting customers' delivery, installation or
performance requirements.
WE RELY ON SINGLE SOURCES FOR SUPPLY OF CERTAIN COMPONENTS AND OUR BUSINESS MAY
BE SERIOUSLY HARMED IF OUR SUPPLY OF ANY OF THESE COMPONENTS AND OTHER
COMPONENTS IS DISRUPTED
We currently purchase several key components, including commercial digital
signal processors, RISC processors, field programmable gate arrays, SONET
transceivers and erbium doped fiber amplifiers, from single or limited sources.
We purchase each of these components on a purchase order basis and have no long-
term contracts for these components. Although we believe that there are
alternative sources for each of these components, in the event of a disruption
in supply, we may not be able to develop an alternate source in a timely manner
or at favorable prices. Such a failure could hurt our ability to deliver our
products to our customers and negatively affect our operating margins. In
addition, our reliance on our suppliers exposes us to potential supplier
production difficulties or quality variations. Any such disruption in supply
would seriously impact present and future sales and revenue. In particular,
component yield limitations continue to negatively impact the production
manufacturing for the SN 16000 and our revenues from this product. Further, the
optical component industry is expanding rapidly and manufacturers of optical
components face unpredictable and growing demand for components. There is an
industry-wide shortage of some optical components which may result in increased
pricing of such components, extended waiting periods after the placement of
orders for such components and allocations by suppliers limiting the supply of
such components to a given customer in a specific time period. Because optical
components are integrated into our products, this shortage could negatively
impact our sales and operating results.
IF WE DO NOT RESPOND RAPIDLY TO TECHNOLOGICAL CHANGES, OUR PRODUCTS COULD BECOME
OBSOLETE
The market for intelligent optical networking products is likely to be
characterized by rapid technological change, frequent new product introductions
and changes in customer requirements. We may be unable to respond quickly or
effectively to these developments. We may experience design, manufacturing,
marketing and other difficulties that could delay or prevent our development,
introduction or marketing of new products and enhancements. The introduction of
new products by competitors, market acceptance of products based on new or
alternative technologies or the emergence of new industry standards could render
our existing or future products obsolete.
In developing our products, we have made, and will continue to make, assumptions
about the standards that may be adopted by our customers and competitors. If the
standards adopted are different from those which we have chosen to support,
market acceptance of our products may be significantly reduced or delayed and
our business will be seriously harmed. The introduction of products
incorporating new technologies and the emergence of new industry standards could
render our existing products obsolete.
In addition, in order to introduce products incorporating new technologies and
new industry standards, we must be able to gain access to the latest
technologies of our customers, our suppliers and other network vendors. Any
failure to gain access to the latest technologies could impair the
competitiveness of our products.
CUSTOMER REQUIREMENTS ARE LIKELY TO EVOLVE, AND WE WILL NOT RETAIN CUSTOMERS OR
ATTRACT NEW CUSTOMERS IF WE DO NOT ANTICIPATE AND MEET SPECIFIC CUSTOMER
REQUIREMENTS
Our current and prospective customers may require product features and
capabilities that our current products do not have. To achieve market acceptance
for our products, we must effectively and timely anticipate and adapt to
customer requirements and offer products and services that meet customer
demands. Our failure to develop products or offer services that satisfy customer
requirements would seriously harm our ability to increase demand for our
products.
We intend to continue to invest in product and technology development. The
development of new or enhanced products
-19-
is a complex and uncertain process that requires the accurate anticipation of
technological and market trends. We may experience design, manufacturing,
marketing and other difficulties that could delay or prevent the development,
introduction, volume production or marketing of new products and enhancements.
The introduction of new or enhanced products also requires that we manage the
transition from older products in order to minimize disruption in customer
ordering patterns and ensures that adequate supplies of new products can be
delivered to meet anticipated customer demand. Our inability to effectively
manage this transition would cause us to lose current and prospective customers.
OUR MARKET IS HIGHLY COMPETITIVE, AND OUR FAILURE TO COMPETE SUCCESSFULLY WOULD
LIMIT OUR ABILITY TO INCREASE OUR MARKET SHARE
Competition in the public network infrastructure market is intense. This market
has historically been dominated by large companies, such as Lucent Technologies,
Nortel Networks, Cisco Systems and Ciena Corporation. In addition, a number of
smaller companies have announced plans for new products to address the same
network problems which our products address. Many of our current and potential
competitors have significantly greater selling and marketing, technical,
manufacturing, financial and other resources, including vendor-sponsored
financing programs. Moreover, our competitors may foresee the course of market
developments more accurately and could develop new technologies that compete
with our products or even render our products obsolete. Due to the rapidly
evolving markets in which we compete, additional competitors with significant
market presence and financial resources may enter those markets, thereby further
intensifying competition.
In order to compete effectively, we must deliver products that:
* provide extremely high network reliability;
* scale easily and efficiently with minimum disruption to the network;
* interoperate with existing network designs and equipment vendors;
* reduce the complexity of the network by decreasing the need for overlapping
equipment;
* provide effective network management; and
* provide a cost-effective solution for service providers.
In addition, we believe that knowledge of the infrastructure requirements
applicable to service providers, experience in working with service providers to
develop new services for their customers and an ability to provide
vendor-sponsored financing, are important competitive factors in our market. We
have a limited ability to provide vendor-sponsored financing and this may
influence the purchasing decisions of prospective customers, who may decide to
purchase products from one of our competitors who are able to provide more
extensive financing programs.
If we are unable to compete successfully against our current and future
competitors, we could experience price reductions, order cancellations and
reduced gross margins, any one of which could materially and adversely affect
our business, results of operations and financial condition.
WE ARE LIKELY TO FACE DIFFICULTIES IN OBTAINING AND RETAINING CUSTOMERS IF WE DO
NOT EXPAND OUR SALES ORGANIZATION AND OUR CUSTOMER SERVICE AND SUPPORT
OPERATIONS
Our products and services require a sophisticated sales effort targeted at a
limited number of key individuals within our prospective customers'
organizations. This effort requires specialized sales personnel and consulting
engineers. We are building our direct sales force and plan to hire additional
qualified sales personnel and consulting engineers. Competition for these
individuals is intense, and we might not be able to hire and train the kind and
number of sales personnel and consulting engineers required for us to be
successful. In addition, we believe that our future success is dependent upon
our ability to establish successful relationships with a variety of distribution
partners. If we are unable to expand our direct sales operations or our indirect
sales channel, we may not be able to increase market awareness or sales of our
products, which may prevent us from maintaining profitability.
We are expanding our customer service and support organization and will need to
increase our staff and third party
-20-
subcontractor relationships to support new customers, including new
international opportunities, and a growing volume of turnkey sales. The
installation and support of our products requires highly trained customer
service and support personnel. Hiring customer service and support personnel is
very competitive in our industry because there are a limited number of people
available with the necessary technical skills and understanding of our market.
Once we hire them, they may require extensive training in our intelligent
optical networking products. If we are unable to expand our customer service and
support organization and train our personnel rapidly or outsource these
functions to competent trained subcontractors, our continued growth and
relationships with customers may be adversely affected and we may not be able to
increase sales of our products.
WE DEPEND UPON CONTRACT MANUFACTURERS AND ANY DISRUPTION IN THESE RELATIONSHIPS
MAY CAUSE US TO FAIL TO MEET THE DEMANDS OF OUR CUSTOMERS AND DAMAGE OUR
CUSTOMER RELATIONSHIPS
We have limited internal manufacturing capabilities. We rely on a small number
of contract manufacturers to manufacture our products in accordance with our
specifications and to fill orders on a timely basis. We have supply contracts
with Celestica Corporation and Jabil Circuit, Inc., which provide comprehensive
manufacturing services, including assembly, test, control and shipment to our
customers, and procure material on our behalf. We may not be able to effectively
manage our relationship with such contract manufacturers, and such contract
manufacturers may not meet our future requirements for timely delivery. Each of
our contract manufacturers also builds products for other companies, and we
cannot assure you that they will always have sufficient quantities of inventory
available to fill orders placed by our customers or that they will allocate
their internal resources to fill these orders on a timely basis. We also
purchase products from certain other manufacturers, primarily on a purchase
order basis. Qualifying a new contract manufacturer and commencing volume
production is expensive and time consuming and could result in a significant
interruption in the supply of our products. If we are required or choose to
change contract manufacturers, we may lose revenue and damage our customer
relationships.
SALES TO EMERGING SERVICE PROVIDERS MAY INCREASE THE UNPREDICTABILITY OF OUR
RESULTS
As a result of current economic and market conditions, decreased funding is
available for large capital expenditures by service providers. This decrease in
available funding significantly affects spending by our customers that are
emerging service providers. In addition, the timing and volume of purchases by
emerging service providers can be unpredictable due to other factors, including
their need to build a customer base and capacity while working within their
budgetary constraints. As a result of economic and other conditions, emerging
service providers, which had been the early adopters of our technology, are no
longer able to continue to fund aggressive deployments. Our ability to recognize
revenue from emerging service providers will depend on the relative financial
strength of the particular customer. We may be required to write off or decrease
the value of our accounts receivable from a customer whose financial condition
materially deteriorates. Decreases in purchasing volume of emerging service
providers or changes in the financial condition of emerging service provider
customers could have a material adverse effect on our results of operations.
THE INTELLIGENT OPTICAL NETWORKING MARKET IS NEW AND OUR BUSINESS WILL SUFFER IF
IT DOES NOT DEVELOP AS WE EXPECT
The market for intelligent optical networking products is new. We cannot assure
you that a viable market for our products will develop or be sustainable. If
this market does not develop, develops more slowly than we expect or is not
sustained, our business, results of operations and financial condition would be
seriously harmed.
IF OUR PRODUCTS DO NOT INTEROPERATE WITH OUR CUSTOMERS' NETWORKS, INSTALLATIONS
WILL BE DELAYED OR CANCELLED AND WE COULD HAVE SUBSTANTIAL PRODUCT RETURNS,
WHICH COULD SERIOUSLY HARM OUR BUSINESS
Many of our customers will require that our products be specifically designed to
interface with their existing networks, each of which may have different
specifications and utilize multiple protocol standards. Our customers' networks
contain multiple generations of products that have been added over time as these
networks have grown and evolved. Our products must interoperate with all of the
products within these networks as well as future products in order to meet our
customers' requirements. The requirement that we modify product design in order
to achieve a sale may result in a longer sales cycle, increased research and
development expense and reduced margins on our products. If we find
-21-
errors in the existing software used in our customers' networks, we will have to
modify our products to fix or overcome these errors so that our products will
interoperate and scale with the existing software and hardware. If our products
do not interoperate with those of our customers' networks, installations could
be delayed, orders for our products could be cancelled or our products could be
returned. This would also seriously harm our reputation, all of which could
seriously harm our business and prospects.
UNDETECTED SOFTWARE OR HARDWARE ERRORS AND PROBLEMS ARISING FROM USE OF OUR
PRODUCTS IN CONJUNCTION WITH OTHER VENDORS' PRODUCTS COULD RESULT IN DELAYS OR
LOSS OF MARKET ACCEPTANCE OF OUR PRODUCTS
Networking products frequently contain undetected software or hardware errors
when first introduced or as new versions are released. We expect that errors
will be found from time to time in new or enhanced products after we begin
commercial shipments. In addition, service providers typically use our products
in conjunction with products from other vendors. As a result, when problems
occur, it may be difficult to identify the source of the problem. These problems
may cause us to incur significant warranty, support and repair costs, divert the
attention of our engineering personnel from our product development efforts and
cause significant customer relations problems. The occurrence of these problems
could result in the delay or loss of market acceptance of our products and would
likely have a material adverse effect on our business, results of operations and
financial condition. Defects, integration issues or other performance problems
in our products could result in financial or other damages to our customers or
could damage market acceptance for our products. Our customers could also seek
damages for losses from us. A product liability claim brought against us, even
if unsuccessful, would likely be time consuming and costly.
OUR FAILURE TO ESTABLISH AND MAINTAIN KEY CUSTOMER RELATIONSHIPS MAY RESULT IN
DELAYS IN INTRODUCING NEW PRODUCTS OR CAUSE CUSTOMERS TO FOREGO PURCHASING OUR
PRODUCTS
Our future success will also depend upon our ability to develop and manage key
customer relationships in order to introduce a variety of new products and
product enhancements that address the increasingly sophisticated needs of our
customers. Our failure to establish and maintain these customer relationships
may adversely affect our ability to develop new products and product
enhancements. In addition, we may experience delays in releasing new products
and product enhancements in the future. Material delays in introducing new
products and enhancements or our inability to introduce competitive new products
may cause customers to forego purchases of our products and purchase those of
our competitors, which could seriously harm our business.
OUR FAILURE TO CONTINUALLY IMPROVE OUR INTERNAL CONTROLS AND SYSTEMS, AND HIRE
NEEDED PERSONNEL COULD IMPAIR OUR FUTURE GROWTH
We have expanded our operations rapidly since our inception. We continue to
increase the scope of our operations and have grown our headcount substantially
both domestically and internationally. For example, at April 29, 2000, we had a
total of 513 employees and at April 28, 2001, we had a total of 986 employees.
Our growth has placed a significant strain on our management systems and
resources. Our ability to successfully offer our products and services and
implement our business plan in a rapidly evolving market requires an effective
planning and management process. We expect that we will need to continue to
improve our financial, managerial and manufacturing controls and reporting
systems, and will need to continue to expand, train and manage our work force
worldwide. We may not be able to implement adequate control systems in an
efficient and timely manner. Competition for highly skilled personnel is
intense, especially in the New England area. Any failure to attract, assimilate
or retain qualified personnel to fulfill our current or future needs could
impair our growth.
WE DEPEND ON OUR KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY IN A RAPIDLY
CHANGING MARKET, AND IF WE ARE UNABLE TO RETAIN OUR KEY EMPLOYEES, OUR ABILITY
TO COMPETE COULD BE HARMED
Our future success depends upon the continued services of our executive officers
and other key engineering, sales, marketing and support personnel, who have
critical industry experience and relationships that we rely on to implement our
business plan. None of our officers or key employees is bound by an employment
agreement for any specific term. We do not have "key person" life insurance
policies covering any of our employees. The loss of the services of any of our
key employees could delay the development and introduction of, and negatively
impact our ability to sell, our products.
-22-
IF WE BECOME SUBJECT TO UNFAIR HIRING CLAIMS, WE COULD INCUR SUBSTANTIAL COSTS
IN DEFENDING OURSELVES
Companies in our industry, whose employees accept positions with competitors,
frequently claim that their competitors have engaged in unfair hiring practices.
We cannot assure you that we will not receive claims of this kind or other
claims relating to our employees in the future as we seek to hire qualified
personnel or that those claims will not result in material litigation. We could
incur substantial costs in defending ourselves or our employees against such
claims, regardless of their merits. In addition, defending ourselves or our
employees from such claims could divert the attention of our management away
from our operations.
OUR ABILITY TO COMPETE COULD BE JEOPARDIZED IF WE ARE UNABLE TO PROTECT OUR
INTELLECTUAL PROPERTY RIGHTS FROM THIRD-PARTY CHALLENGES
We rely on a combination of patent, copyright, trademark and trade secret laws
and restrictions on disclosure to protect our intellectual property rights. We
also enter into confidentiality or license agreements with our employees,
consultants and corporate partners and control access to and distribution of our
software, documentation and other proprietary information. Despite our efforts
to protect our proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain and use our products or technology.
Monitoring unauthorized use of our products is difficult and we cannot be
certain that the steps we have taken will prevent unauthorized use of our
technology, particularly in foreign countries where the laws may not protect our
proprietary rights as fully as in the United States. If competitors are able to
use our technology, our ability to compete effectively could be harmed.
IF NECESSARY LICENSES OF THIRD-PARTY TECHNOLOGY ARE NOT AVAILABLE TO US OR ARE
VERY EXPENSIVE, OUR PRODUCTS COULD BECOME OBSOLETE
From time to time we may be required to license technology from third parties to
develop new products or product enhancements. We cannot assure you that
third-party licenses will be available to us on commercially reasonable terms,
if at all. The inability to obtain any third-party license required to develop
new products and product enhancements could require us to obtain substitute
technology of lower quality or performance standards or at greater cost, either
of which could seriously harm the competitiveness of our products.
WE COULD BECOME SUBJECT TO CLAIMS REGARDING INTELLECTUAL PROPERTY RIGHTS, WHICH
COULD SERIOUSLY HARM OUR BUSINESS AND REQUIRE US TO INCUR SIGNIFICANT COSTS
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. Our industry in
particular is characterized by the existence of a large number of patents and
frequent claims and related litigation regarding patents and other intellectual
property rights. We may be a party to claims as a result of an allegation that
we infringe others' intellectual property. Such disputes could result in
significant expenses to Sycamore and divert the efforts of our technical and
management personnel.
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. These claims, again, regardless of their
merit, would likely be time-consuming and expensive to resolve, would divert
management time and attention and would put the Company at risk to:
* stop selling, incorporating or using our products that use 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.
-23-
If we are forced to take any of the foregoing actions, our business may be
seriously harmed.
WE MAY FACE RISKS ASSOCIATED WITH OUR INTERNATIONAL EXPANSION THAT COULD IMPAIR
OUR ABILITY TO GROW OUR REVENUES ABROAD
We intend to continue to expand our sales into international markets. This
expansion will require significant management attention and financial resources
to develop successfully direct and indirect international sales and services
channels and to support customers in international markets. We may not be able
to develop international market demand for our products.
We have limited experience in marketing, distributing and supporting our
products internationally and to do so, we expect that we will need to develop
versions of our products that comply with local standards. In addition,
international operations are subject to other inherent risks, including:
* greater difficulty in accounts receivable collection and longer
collection periods;
* difficulties and costs of staffing and managing foreign operations;
* the impact of recessions in economies outside the United States;
* unexpected changes in regulatory requirements;
* certification requirements;
* currency fluctuations;
* reduced protection for intellectual property rights in some countries;
* potentially adverse tax consequences; and
* political and economic instability.
ANY ACQUISITIONS WE MAKE COULD DISRUPT OUR BUSINESS AND SERIOUSLY HARM OUR
FINANCIAL CONDITION
As part of our ongoing business development strategy, we consider acquisitions
and strategic investments in complementary companies, products or technologies.
In the event of an acquisition, we could:
* issue stock that would dilute our current stockholders' percentage
ownership;
* incur debt;
* assume liabilities;
* incur amortization expenses related to goodwill and other intangible
assets; or
* incur large and immediate write-offs.
Our ability to achieve the benefits of any acquisition, including our
acquisition and integration of Sirocco which we completed on September 7, 2000,
will also involve numerous risks, including:
* problems combining the purchased operations, technologies or products;
* unanticipated costs;
* diversion of management's attention from our core business;
-24-
* adverse effects on existing business relationships with suppliers and
customers;
* risks associated with entering markets in which we have no or limited
prior experience; and
* problems with integrating employees and potential loss of key employees.
We cannot assure you that we will be able to successfully integrate any
businesses, products, technologies or personnel that we might acquire in the
future and any failure to do so could disrupt our business and seriously harm
our financial condition.
ANY EXTENSION OF CREDIT TO OUR CUSTOMERS MAY SUBJECT US TO CREDIT RISKS AND
LIMIT THE CAPITAL THAT WE HAVE AVAILABLE FOR OTHER USES
We are experiencing increased demands for customer financing and we expect these
demands to continue. We believe it is a competitive factor in obtaining
business. From time to time we may provide or commit to extend credit or credit
support to our customers, including emerging service providers, as we consider
appropriate in the course of our business. Such financing activities subject us
to the credit risk of customers whom we finance. In addition, our ability to
recognize revenue from financed sales will depend upon the relative financial
condition of the specific customer, among other factors. Although we have
programs in place to monitor the risk associated with vendor financing, we
cannot assure you that such programs will be effective in reducing our risk of
an impaired ability to pay on the part of a customer whom we have financed. We
could experience losses due to customers failing to meet their financial
obligations which could harm our business and materially adversely affect our
operating results and financial condition.
RISKS RELATED TO THE SECURITIES MARKET
OUR STOCK MAY BE VOLATILE
An active public market for our common stock may not be sustained. The market
for technology stocks has been extremely volatile. Our common stock has
experienced, and may continue to experience, substantial price volatility. The
following factors could cause the market price of our common stock to fluctuate
significantly:
* our loss of a major customer;
* significant changes or slowdowns in the funding and spending patterns of
our current and prospective customers;
* the addition or departure of key personnel;
* variations in our quarterly operating results;
* announcements by us or our competitors of significant contracts, new
products or product enhancements;
* failure by us to meet product milestones;
* acquisitions, distribution partnerships, joint ventures or capital
commitments;
* variations between our actual results and the published expectations of
analysts;
* changes in financial estimates by securities analysts;
* sales of our common stock or other securities in the future;
* changes in market valuations of broadband access technology companies;
* changes in market valuations of networking and telecommunications
companies; and
* fluctuations in stock market prices and volumes.
-25-
In addition, the stock market in general, and the Nasdaq National Market and
technology companies in particular, have experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the operating
performance of such companies. These broad market and industry factors may
materially adversely affect the market price of our common stock, regardless of
our actual operating performance. In the past, following periods of volatility
in the market price of a company's securities, securities class-action
litigation has often been instituted against such companies. Such litigation, if
instituted, could result in substantial costs and a diversion of management's
attention and resources.
THERE MAY BE SALES OF A SUBSTANTIAL AMOUNT OF OUR COMMON STOCK THAT COULD CAUSE
OUR STOCK PRICE TO FALL
As of April 28, 2001 options to purchase a total of 38,483,750 shares of our
common stock were outstanding. These options are subject to vesting schedules. A
number of the shares underlying these options are freely tradable. In addition,
certain of our current stockholders hold a substantial number of shares which
are subject to restrictions limiting their ability to sell such shares. These
stockholders may be able to sell such shares in the public market in the near
future. Sales of a substantial number of shares of our common stock could cause
our stock price to fall. In addition, sales of shares by our stockholders could
impair our ability to raise capital through the sale of additional stock.
INSIDERS OWN A SUBSTANTIAL NUMBER OF SYCAMORE SHARES AND COULD LIMIT YOUR
ABILITY TO INFLUENCE THE OUTCOME OF KEY TRANSACTIONS, INCLUDING CHANGES OF
CONTROL
As of April 28, 2001, the executive officers, directors and entities affiliated
with them, in the aggregate, beneficially owned approximately 43.18% of our
outstanding common stock. These stockholders, if acting together, would be able
to influence significantly matters requiring approval by our stockholders,
including the election of directors and the approval of mergers or other
business combination transactions.
PROVISIONS OF OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY HAVE ANTI-TAKEOVER
EFFECTS THAT COULD PREVENT A CHANGE OF CONTROL
Provisions of our amended and restated certificate of incorporation, by-laws,
and Delaware law could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our stockholders.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The following discussion about our market risk disclosures involves forward-
looking statements. Actual results could differ materially from those projected
in the forward-looking statements. We are exposed to market risk related to
changes in interest rates and foreign currency exchange rates. We do not use
derivative financial instruments for speculative or trading purposes.
INTEREST RATE SENSITIVITY
We maintain a portfolio of cash equivalents and short-term and long-term
investments in a variety of securities including; commercial paper, certificates
of deposit, money market funds and government and non-government debt
securities. These available-for-sale securities are subject to interest rate
risk and may fall in value if market interest rates increase. If market interest
rates were to increase immediately and uniformly by 10 percent from levels at
April 28, 2001 the fair value of the portfolio would decline by approximately
$3.5 million. We have the ability to hold our fixed income investments until
maturity, and therefore do not expect our operating results or cash flows to be
affected to any significant degree by the effect of a sudden change in market
interest rates on our securities portfolio.
EXCHANGE RATE SENSITIVITY
We operate primarily in the United States, and the majority of our sales to date
have been made in US dollars. However, our business has become increasingly
global and we expect this trend to continue. As a result, we make sales in
non-dollar currencies and have exposure to foreign currency rate fluctuations.
Fluctuations in foreign currencies may have an impact on our financial results.
We are prepared to hedge against fluctuations in foreign currencies if the
exposure is material.
-26-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of business, we become involved in various lawsuits and
claims. While the outcome of these matters is not currently determinable, we
believe that the outcome will not have a material adverse affect on our results
of operations or our financial position.
Item 2. Changes in Securities and Use of Proceeds
(a) None.
(b) None.
(c) On March 20, 2001, the Company issued a warrant to purchase 150,000 shares
of common stock at an exercise price of $11.69 to a consulting firm in exchange
for services. No underwriters were involved in such issuance. Such issuance was
made in reliance upon an exemption from the registration provisions of the
Securities Act set forth in Section 4(2) thereof or the rules and regulations
thereunder relating to sales by an issuer not involving any public offering.
Such securities are deemed restricted securities for purposes of the Securities
Act.
(d) None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
(a) List of Exhibits
Number Exhibit Description
- ------------- -----------------------------------------------------------------
**3.1 Amended and Restated Certificate of Incorporation
**3.2 Certificate of Amendment to the Amended and Restated Certificate
of Incorporation
***3.3 Certificate of Amendment to the Amended and Restated Certificate
of Incorporation
**3.4 Amended and Restated By-Laws
*4.1 Specimen common stock certificate
**4.2 See Exhibits 3.1, 3.2 and 3.3, for provisions of the Certificate
of Incorporation and By-Laws of the Registrant defining the
rights of holders of common stock
10.7 1999 Stock Incentive Plan, as Amended
+10.19 Manufacturing Services Agreement between Sycamore Networks, Inc
and Jabil Circuit, Inc.
-27-
* Incorporated by reference to Sycamore Networks Inc.'s Registration
Statement on Form S-1 (Registration Statement No. 333-84635).
** Incorporated by reference to Sycamore Networks Inc.'s Registration
Statement on Form S-1 (Registration Statement File No. 333-30630).
*** Incorporated by reference to Sycamore Networks Inc.'s Quarterly report on
Form 10Q for the Quarterly Period ended January 27, 2001 filed with the
Commission on March 13, 2001.
+ Confidential treatment has been requested for certain portions of this
Exhibit pursuant to Rule 24b-2, as amended, promulgated under the of the
Securities and Exchange Act of 1934, as amended, which portions are omitted and
filed separately with the Securities and Exchange Commission.
(b) Reports on Form 8-K: The Company filed the following during the period:
(1) A Current Report on Form 8-K filed on April 6, 2001 relating to a press
release issued by the Company providing revised guidance as to its revenue and
earnings for the third fiscal quarter ending April 28, 2001; and
(2) A Current Report on Form 8-K filed on May 17, 2001 containing financial
information including the consolidated balance sheets, related consolidated
statements of operations, and statements of stockholders' equity (deficit) and
cash flows for the fiscal years ended July 31, 2000, July 31,1999, and July 31,
1998 pertaining to the retroactive effect of the September 7, 2000 business
combination of Sycamore Networks, Inc. and Sirocco Systems, Inc., which was
accounted for as a pooling of interests.
-28-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Sycamore Networks, Inc.
/s/ Frances M. Jewels
- ---------------------
Frances M. Jewels
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
Dated: June 12, 2001
-29-
EXHIBIT INDEX
Number Exhibit Description
- ------------- -----------------------------------------------------------------
**3.1 Amended and Restated Certificate of Incorporation
**3.2 Certificate of Amendment to the Amended and Restated Certificate
of Incorporation
***3.3 Certificate of Amendment to the Amended and Restated Certificate
of Incorporation
**3.4 Amended and Restated By-Laws
*4.1 Specimen common stock certificate
**4.2 See Exhibits 3.1, 3.2 and 3.3, for provisions of the Certificate
of Incorporation and By-Laws of the Registrant defining the
rights of holders of common stock
10.7 1999 Stock Incentive Plan, as Amended
+10.19 Manufacturing Services Agreement between Sycamore Networks, Inc
and Jabil Circuit, Inc.
* Incorporated by reference to Sycamore Networks Inc.'s Registration
Statement on Form S-1 (Registration Statement No. 333-84635).
** Incorporated by reference to Sycamore Networks Inc.'s Registration
Statement on Form S-1 (Registration Statement File No. 333-30630).
*** Incorporated by reference to Sycamore Networks Inc.'s Quarterly report on
Form 10Q for the Quarterly Period ended January 27, 2001 filed with the
Commission on March 13, 2001.
+ Confidential treatment has been requested for certain portions of this
Exhibit pursuant to Rule 24b-2, as amended, promulgated under the of the
Securities and Exchange Act of 1934, as amended, which portions are omitted and
filed separately with the Securities and Exchange Commission.
-30-