UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED OCTOBER 25, 2014
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 000-27273
SYCAMORE NETWORKS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 04-3410558 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
300 Brickstone Square, Suite 201
Andover, Massachusetts 01810
(Address of principal executive offices)
(Zip code)
(978) 662-5245
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller Reporting Company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
The number of shares outstanding of the registrants Common Stock as of November 13, 2014 was 28,882,093.
Index |
Page No. | |||||
Part I. |
3 | |||||
Item 1. |
3 | |||||
Consolidated Statement of Net Assets (Liquidation Basis) as of October 25, 2014 and July 31, 2014 |
4 | |||||
4 | ||||||
5 | ||||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
11 | ||||
Item 3. |
14 | |||||
Item 4. |
15 | |||||
Part II. |
16 | |||||
Item 1A. |
16 | |||||
Item 2. |
16 | |||||
Item 5. |
16 | |||||
Item 6. |
17 | |||||
19 |
2
Part I. | Financial Information |
Item 1. | Financial Statements |
Sycamore Networks, Inc.
Consolidated Statement of Net Assets in Liquidation
(in thousands, except per share data)
(unaudited)
October 25, 2014 | July 31, 2014 | |||||||
Assets |
||||||||
Cash and cash equivalents |
$ | 11,926 | $ | 12,241 | ||||
Land |
2,500 | 2,500 | ||||||
Other assets |
101 | 47 | ||||||
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Total assets |
14,527 | 14,788 | ||||||
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Liabilities and Net Assets |
||||||||
Accounts payable |
110 | | ||||||
Accrued expenses |
47 | 44 | ||||||
Reserve for estimated costs during the Dissolution period |
3,000 | 3,462 | ||||||
Other liabilities |
1,786 | 1,786 | ||||||
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Total liabilities |
4,943 | 5,292 | ||||||
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Net assets in liquidation |
$ | 9,584 | $ | 9,496 | ||||
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Shares outstanding |
28,882 | 28,882 | ||||||
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Net assets in liquidation per share |
$ | 0.33 | $ | 0.33 | ||||
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The accompanying notes are an integral part of the consolidated financial statements.
3
Sycamore Networks, Inc.
Consolidated Statement of Changes in Net Assets (Liquidation Basis)
For the three months ended October 25, 2014 and October 26, 2013
(in thousands)
(unaudited)
Three months ended October 25, 2014 |
||||
Net assets in liquidation as of July 31, 2014 |
$ | 9,496 | ||
Change in estimated realizable value of assets and liabilities: |
||||
Decrease in estimated costs during the Dissolution period |
20 | |||
Increase in estimated realizable value for other assets |
68 | |||
Net assets in liquidation as of October 25, 2014 |
$ | 9,584 | ||
|
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Three months ended October 26, 2013 |
||||
Net assets in liquidation as of July 31, 2013 |
$ | 13,637 | ||
Change in estimated net realizable value of assets and liabilities: |
||||
None |
| |||
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Net assets in liquidation as of October 26, 2013 |
$ | 13,637 | ||
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The accompanying notes are an integral part of the consolidated financial statements.
4
Sycamore Networks, Inc.
Notes To Consolidated Financial Statements (Unaudited)
1. Description of Business
Prior to February 1, 2013, Sycamore Networks, Inc. (the Company) developed and marketed Intelligent Bandwidth Management solutions for fixed line and mobile network operators worldwide and provided services associated with such products (the Intelligent Bandwidth Management Business), and, prior to November 1, 2012, the Company also developed and marketed a mobile broadband optimization solution (the IQstream Business). As used in these Notes to the Consolidated Financial Statements, Sycamore, we, us, or our refers collectively to the Company and its subsidiaries.
On October 23, 2012, the Company entered into an Asset Purchase and Sale Agreement (the Asset Sale Agreement) with Sunrise Acquisition Corp. (now known as Coriant America Inc.), a portfolio company of Marlin Equity Partners (Buyer), pursuant to which Buyer agreed to acquire substantially all of the assets (the Asset Sale) primarily related to the Intelligent Bandwidth Management Business, including inventory, fixed assets, accounts receivable, intellectual property rights (other than patents and patent applications), contracts, certain real estate leases, the Companys subsidiaries in Shanghai, the Netherlands and Japan, and certain shared facilities and assets for $18.75 million in cash, subject to a working capital adjustment, and the assumption by Buyer of certain liabilities. The Companys stockholders authorized the Asset Sale at a Special Meeting of Stockholders held on January 29, 2013 (the Special Meeting), and the Asset Sale was completed on January 31, 2013 (the transfer of the Companys equity interests in its Shanghai subsidiary, which was subject to the receipt of government approval, occurred on March 25, 2013). Upon the closing of the Asset Sale, Buyer acquired substantially all of the Companys operating assets relating to the Intelligent Bandwidth Management Business, including the Companys accounts receivable, inventories and prepaid and other assets, and assumed most of the Companys remaining current liabilities, including substantially all of the Companys deferred revenue and accrued warranty obligations.
In conjunction with the approval of the Asset Sale Agreement, the Companys Board of Directors (the Board) also approved the liquidation and dissolution of the Company (the Dissolution) pursuant to a Plan of Complete Liquidation and Dissolution (the Plan of Dissolution) following the completion of the Asset Sale. The Plan of Dissolution was also approved by the stockholders at the Special Meeting and, following a review of the Companys strategic alternatives for all of the Companys assets and available options for providing value to the Companys stockholders, the Company filed a certificate of dissolution with the Secretary of State of the State of Delaware (the Certificate of Dissolution) on March 7, 2013. For additional information regarding the Dissolution, please see the Companys Definitive Proxy Statement on Schedule 14A filed with the U.S. Securities and Exchange Commission (the SEC) on December 28, 2012 and its Current Report on Form 8-K filed with the SEC on March 8, 2013.
In connection with the filing of the Certificate of Dissolution, on March 7, 2013, the Company closed its stock transfer books and discontinued recording transfers of its common stock, $0.001 par value per share (the Common Stock). The Common Stock, and stock certificates evidencing shares of the Common Stock, are no longer assignable or transferable on the Companys books, other than transfers by will, intestate succession or operation of law. The Company also submitted a request to The NASDAQ Stock Market (NASDAQ) to suspend trading of the Common Stock on The NASDAQ Global Select Market effective as of the close of trading on March 7, 2013 and, on March 15, 2013, the Company filed a Form 25 with the SEC to delist its Common Stock, which became effective prior to the opening of trading on March 25, 2013. Since the suspension of trading of the Common Stock on The NASDAQ Global Select Market, shares of our Common Stock held in street name with brokers have been trading in the over-the-counter market on the Pink Sheets, an electronic bulletin board established for unlisted securities.
As a result of the completion of the Asset Sale and the Companys previously announced halting of further development and marketing in connection with the IQstream Business, the Company no longer has any operating assets or revenue. Since the filing of the Certificate of Dissolution, the Company has been operating in accordance with the Plan of Dissolution, which contemplates an orderly wind down of the Companys business, including the sale or monetization of the Companys remaining non-cash assets and the satisfaction or settlement of its liabilities and obligations, including contingent liabilities and claims. As of October 25, 2014, the Company had two remaining employees.
During fiscal 2014, the Company completed the sale of its patent portfolios. On February 28, 2014, the Company completed the sale of its portfolio of 40 patents and two patent applications related to the Intelligent Bandwidth Management Business (the IBM Patents) for $2.0 million to Dragon Intellectual Property, LLC. On May 22,
5
2014, the Company completed the sale of its portfolio of three United States patents, six United States patent applications and certain foreign patents and patent applications related to the IQstream Business (the IQstream Patents) for $0.3 million to Citrix Systems, Inc.
The Company is continuing to pursue the sale of its remaining non-cash assets, which primarily consist of (1) approximately 102 acres of undeveloped land located in Tyngsborough, Massachusetts (the Tyngsborough Land), (2) certain technology and equipment relating to the IQstream Business and (3) the Companys investment in Tejas Networks India Private Limited (Tejas), a private company in India that provides optical transport solutions to telecommunications carriers. Following the sale of the IQstream Patents, the Company has continued to pursue the sale of certain technology and equipment relating to the IQstream Business; however, the Company does not presently expect to receive any additional material consideration for its remaining IQstream assets. In addition, given the illiquid nature of the Companys investment in Tejas and certain other factors negatively impacting the value of the Companys investment in Tejas, the Company does not presently expect to receive any material consideration in connection with any disposition of its Tejas investment.
During the fourth quarter of fiscal 2014, the Company received notice of a potential betterment fee that could be assessed against the Tyngsborough Land in connection with a public sewer project proposed by the Town of Tyngsborough (the Potential Betterment Assessment). On October 2, 2014, the sewer commission of the Town of Tyngsborough provided the Company with an estimate of the potential betterment fee relating to the Tyngsborough Land in the amount of approximately $3.47 million. At a Special Town Meeting held on October 8, 2014, the Town of Tyngsborough voted against proceeding with the sewer project. Although the Town of Tyngsborough voted against proceeding with the sewer project at that time, the Company cannot provide any assurance that the Town of Tyngsborough will not pursue a similar project in the future, nor can the Company provide any assurance as to the impact of such a project on the value of the Tyngsborough Land.
On October 10, 2014, the Company entered into a Purchase and Sale Agreement relating to the Tyngsborough Land (the Purchase Agreement) with Princeton Tyngsborough Commons, LLC (Tyngsborough Commons) for a total purchase price of $2.5 million. Of the total purchase price, amounts totaling $100,000 have been deposited with an escrow agent as nonrefundable deposits to be credited to the purchase price at closing. The Purchase Agreement contains customary provisions relating to, among other things, the condition of the title to the Tyngsborough Land, environmental conditions, representations and warranties, obligations of the parties prior to closing and apportionment of taxes. The Companys representations and warranties and obligations under the Purchase Agreement will survive the closing for a period of six months, and under no circumstances will the Company be liable to Tyngsborough Commons for more than $75,000 in the aggregate for any breaches of such representations and warranties or obligations. If the closing occurs, Tyngsborough Commons will be solely responsible for any and all costs related to the Potential Betterment Assessment. In addition, following the closing, Tyngsborough Commons intends to sell a portion of the Tyngsborough Land to a third party buyer. In no event will the Company be bound by the terms of any agreement with respect to such sale, provided that, in the event Tyngsborough Commons fails to fulfill its obligations under the Purchase Agreement, the Company may in its sole discretion require an assignment to the Company of Tyngsborough Commonss rights under any such agreement.
The Company currently expects to complete the sale on or about December 31, 2014 (unless an earlier date is agreed upon by the Company and Tyngsborough Commons), subject to Tyngsborough Commonss right, in its sole discretion and subject to the payment of an additional nonrefundable deposit in the amount of $100,000, to extend the closing date to February 27, 2015. The Company is entitled to terminate the Purchase Agreement if the closing does not take place on or before February 27, 2015 (or if the closing does not occur by December 31, 2014, if Tyngsborough Commons has failed to pay the additional deposit). The closing of the sale is subject to certain conditions and obligations of the parties prior to closing, some of which are outside of the Companys control and, accordingly, there can be no assurance when or if such closing will occur. If the Purchase Agreement is terminated, there can be no assurance of when, if ever, the Company will be able to sell the Tyngsborough Land. The inability to sell the Tyngsborough Land may delay the completion of the Companys liquidation and related distributions to its stockholders.
On July 29, 2014, the Company paid a liquidating cash distribution to stockholders of $0.24 per share of Common Stock, or $6.93 million in the aggregate. The Board declared this distribution after the Delaware Court of Chancery, on July 2, 2014, granted the Companys petition for a determination that, among other things, the amount set forth in the petition to be retained by the Company for anticipated wind down costs and expenses and for contingent and unknown liabilities and other possible charges and expenses is sufficient to be retained pursuant to Section 280(c) of the General Corporation Law of the State of Delaware. In accordance with the petition, any portion of the retained amount that is not required to cover wind down costs, charges, expenses or liabilities may be distributed from time to time to the Companys stockholders in the discretion of the Board in accordance with its fiduciary duties.
6
Until the completion of the Dissolution, the Company will continue to pursue the liquidation to cash of its remaining non-cash assets for possible distribution to our stockholders. There can be no assurance as to the amount of consideration the Company may be able to obtain for these assets or as to any time frame within which a potential sale or other disposition of these assets might occur. Subject to uncertainties inherent in the winding up of the Companys business, the Company may make one or more additional liquidating distributions following the liquidation to cash of our non-cash assets and after payment of, or provision for, outstanding claims in accordance with Delaware law. However, the Dissolution process and the payment of any distribution to stockholders involve substantial risks and uncertainties. Accordingly, it is not possible to predict the timing or aggregate amount which will ultimately be distributed to stockholders, and no assurance can be given that the distributions will equal or exceed our estimate of net assets presented in the Companys Consolidated Statement of Net Assets. The Company will continue to analyze its estimates of liquidation expenses on an ongoing basis, and determine whether further distributions of assets to its stockholders are appropriate at such times.
2. Basis of Presentation
The accompanying financial data has been prepared by the Company, without audit, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended July 31, 2014, as filed with the SEC on October 27, 2014.
In the opinion of management, the accompanying financial data reflect all adjustments (consisting of only normal recurring adjustments) necessary for a fair statement of net assets. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements. Actual results could differ from these estimates.
On March 24, 2013, following the Companys filing of the Certificate of Dissolution, the Company adopted the liquidation basis of accounting. See Note 3 to the Consolidated Financial Statements, Liquidation Basis of Accounting, for further information regarding the Companys adoption of the liquidation basis of accounting.
3. Liquidation Basis of Accounting
Net assets in liquidation were $9.58 million and $9.50 million as of October 25, 2014 and July 31, 2014, respectively.
As of October 25, 2014, assets consisted of cash and cash equivalents of $11.93 million, the Tyngsborough Land valued at $2.5 million and other assets of $0.10 million. Based on our current best estimate of the realizable value of the Companys remaining assets relating to the IQstream Business and the Companys investment in Tejas, we have assigned no value to these assets for purposes of the Statement of Net Assets.
As of October 25, 2014, liabilities consisted of accounts payable of $0.11 million, accrued expenses of $0.05 million, our reserve for estimated costs during the Dissolution period of $3.0 million and other liabilities of $1.79 million. For additional information concerning other liabilities, see Note 5. Income Taxes.
The Company accrued estimated costs expected to be incurred in carrying out the Plan of Dissolution. Under Delaware law, the Dissolution period will last for a minimum of three years from the filing of the Certificate of Dissolution, or until March 7, 2016. The Company was required to make certain estimates and exercise judgment in determining the accrued costs of liquidation as of October 25, 2014 and July 31, 2014.
7
The table below summarizes the reserve for estimated costs during the Dissolution period as of October 25, 2014 and July 31, 2014 (in thousands):
October 25, 2014 | July 31, 2014 | |||||||
Compensation |
$ | 894 | $ | 1,004 | ||||
Professional fees |
978 | 1,154 | ||||||
Other expenses associated with wind down activities |
942 | 1,010 | ||||||
Insurance |
186 | 294 | ||||||
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$ | 3,000 | $ | 3,462 | |||||
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Net assets in liquidation increased $0.08 million during the first quarter of fiscal 2015 primarily as a result of an increase in other assets related to a miscellaneous receivable and changes in estimates of other expenses associated with wind down activities.
4. Cash Equivalents and Marketable Securities
Cash equivalents are short-term, highly liquid investments with original or remaining maturity dates of three months or less at the date of acquisition. Cash equivalents are carried at cost plus accrued interest, which approximates fair market value. As of October 25, 2014 and July 31, 2014, aggregate cash and cash equivalents consisted of (in thousands):
October 25, 2014: | Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Market Value |
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Cash and cash equivalents |
$ | 11,926 | $ | | $ | | $ | 11,926 | ||||||||
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Total |
$ | 11,926 | $ | | $ | | $ | 11,926 | ||||||||
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July 31, 2014: | Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Market Value |
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Cash and cash equivalents |
$ | 12,241 | $ | | $ | | $ | 12,241 | ||||||||
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Total |
$ | 12,241 | $ | | $ | | $ | 12,241 | ||||||||
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5. Income Taxes
The Company is currently open to audit under statutes of limitation by the Internal Revenue Service, various foreign jurisdictions, and state jurisdictions for the fiscal years ended July 31, 2008 through July 31, 2014. However, limited adjustments can be made to federal and state tax returns in earlier years in order to reduce net operating loss carryforwards.
As of October 25, 2014 and July 31, 2014, the Company had a liability of $1.79 million for taxes, interest and penalties for unrecognized tax benefits related to various foreign income tax matters. If recognized, the entire amount would impact the Companys effective tax rate. As of October 25, 2014 and July 31, 2014, the Company had $0.6 million accrued for interest and penalties related to uncertain tax positions. The Company accounts for interest and penalties related to uncertain tax positions as part of its provision for federal, international and state income taxes. This liability is subject to change, perhaps materially.
As a result of having substantial net operating losses over recent years and no current operations, the Company determined that it is more likely than not that our deferred tax assets will not be realized. Therefore, we maintain a valuation allowance on the full amount of our net deferred tax assets. If the Company generates future taxable income against which these tax attributes may be applied, the net operating loss carryforwards may be utilized and some or all of the valuation allowance reversed. If the valuation allowance is reversed, portions would be recorded as an increase to paid-in capital and the remainder would be recorded as a reduction in income tax expense.
The occurrence of ownership changes, as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the Code), is not controlled by the Company, and could significantly limit the amount of net operating loss carryforwards and research and development credits that can be utilized annually to offset future taxable income. The Company completed an updated Section 382 study for the period April 2006 through July 31, 2011 and the results of this study showed that no ownership change within the meaning of the Code had occurred from April 2006 through July 31, 2011. The Company has not, however, conducted a Section 382 study for any periods after July 31, 2011 and, accordingly, the Company cannot provide any assurance that an ownership change within the meaning of the Code has not occurred since that date.
8
6. Commitments and Contingencies
Litigation
None.
Guarantees
The Companys guarantees requiring disclosure consist of its indemnification obligations for officers and directors and for other claims.
Prior to the Asset Sale and the Dissolution, in the normal course of business, the Company agreed to indemnify other parties, including customers, lessors and parties to other transactions with the Company with respect to certain matters. Historically, payments made by the Company under these agreements had not had a material impact on the Companys operating results or financial position. Furthermore, most of these obligations were assumed by Buyer in connection with the Asset Sale. Accordingly, the Company has not recorded a liability for these agreements as of October 25, 2014 or July 31, 2014, as the Company believes the exposure for any related payments is not material.
We have entered into our standard form of indemnification agreement with each of our directors and executive officers, which is in addition to the indemnification provided for in our amended and restated certificate of incorporation, as amended. The Plan of Dissolution also provides that we continue to indemnify our directors and executive officers in accordance with such agreements and our amended and restated certificate of incorporation, as amended. The indemnification agreements, among other things, provide for indemnification of our directors and executive officers for a number of expenses, including attorneys fees and other related expenses, as well as certain judgments, fines, penalties and settlement amounts incurred by any such person in any action, suit or proceeding, including any action by or in the right of the Company, arising out of such persons service as a director or executive officer of the Company or any other company or enterprise to which the person provided services at our request. The Company did not incur any expense under these arrangements during the first quarter of fiscal 2015 or fiscal 2014. Due to the Companys inability to estimate liabilities in connection with these agreements, if and when they might be incurred, the Company has not recorded any liability for these agreements as of October 25, 2014 or July 31, 2014. During the Dissolution period, we intend to continue to indemnify each of our current and former directors and executive officers to the extent permitted under Delaware law, our amended and restated certificate of incorporation, as amended, and the indemnification agreements. The Company has also continued to maintain directors and officers insurance coverage since the filing of the Certificate of Dissolution, and intends to maintain such coverage through the end of the Dissolution period.
7. Fair Value Measurements
The fair value measurement rules establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1 | Quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset and liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. | |
Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
9
Assets and liabilities of the Company measured at fair value on a recurring basis as of October 25, 2014, are summarized as follows (in thousands):
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Description |
October 25, 2014 | Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
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Assets |
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Cash and Cash Equivalents |
$ | 11,926 | $ | 11,926 | $ | | $ | | ||||||||
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Total assets |
$ | 11,926 | $ | 11,926 | $ | | $ | | ||||||||
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Cash and Cash Equivalents
Cash and cash equivalents of $11.93 million consisting of money market funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets.
Assets and liabilities of the Company measured at fair value on a recurring basis as of July 31, 2014, are summarized as follows (in thousands):
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Description |
July 31, 2014 | Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
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Assets |
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Cash and Cash Equivalents |
$ | 12,241 | $ | 12,241 | $ | | $ | | ||||||||
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Total assets |
$ | 12,241 | $ | 12,241 | $ | | $ | | ||||||||
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Cash and Cash Equivalents
Cash and cash equivalents of $12.24 million consisting of money market funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets.
8. Subsequent Events
On December 4, 2014, the Board approved the termination of employment of Anthony J. Petrillo as the Companys Chief Financial Officer, effective as of the close of business on December 5, 2014. In connection with the termination of Mr. Petrillos employment with the Company, the Company entered into a Services Consulting Agreement with Mr. Petrillo on December 4, 2014, pursuant to which Mr. Petrillo, following the termination of his employment with the Company, will provide certain financial consulting and other services to the Company relating to the wind down (the Consulting Agreement). Under the terms of the Consulting Agreement, Mr. Petrillo will be entitled to receive $2,500 per month, and he will continue to serve as the Companys Principal Financial Officer and Treasurer on a non-employee basis. Amounts expected to be paid under this consulting agreement are included in the Companys estimated future compensation cost in the reserve for estimated costs during the Dissolution period as of October 25, 2014.
10
Managements Discussion and Analysis of Financial Condition and Results of Operations
Except for the historical information contained herein, we wish to caution you that certain matters discussed in this report constitute forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including, without limitation, those risks and uncertainties discussed under the heading Risk Factors contained in our Annual Report on Form 10-K for the fiscal year ended July 31, 2014, as filed with the U.S. Securities and Exchange Commission (SEC) on October 27, 2014. The information discussed in this report should be read in conjunction with our Annual Report on Form 10-K and other reports we file from time to time with the SEC. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future results or otherwise. Forward-looking statements include statements regarding our expectations, beliefs, intentions or strategies regarding the future and can be identified by forward-looking words such as anticipate, believe, could, estimate, expect, intend, may, should, will, and would or similar words.
Available Information
We file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K with the SEC. These reports, any amendments to these reports, proxy and information statements and certain other documents we file with the SEC are available through the SECs website at www.sec.gov or free of charge on our website as soon as reasonably practicable after we file the documents with the SEC. The public may also read and copy these reports and any other materials we file with the SEC at the SECs Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Executive Summary
Prior to February 1, 2013, Sycamore Networks, Inc. (the Company) developed and marketed Intelligent Bandwidth Management solutions for fixed line and mobile network operators worldwide and provided services associated with such products (the Intelligent Bandwidth Management Business), and, prior to November 1, 2012, the Company also developed and marketed a mobile broadband optimization solution (the IQstream Business). As used in Managements Discussion and Analysis, Sycamore, we, us, or our refers collectively to the Company and its subsidiaries.
On October 23, 2012, the Company entered into an Asset Purchase and Sale Agreement (the Asset Sale Agreement) with Sunrise Acquisition Corp. (now known as Coriant America Inc.), a portfolio company of Marlin Equity Partners (Buyer), pursuant to which Buyer agreed to acquire substantially all of the assets (the Asset Sale) primarily related to the Intelligent Bandwidth Management Business, including inventory, fixed assets, accounts receivable, intellectual property rights (other than patents and patent applications), contracts, certain real estate leases, the Companys subsidiaries in Shanghai, the Netherlands and Japan, and certain shared facilities and assets for $18.75 million in cash, subject to a working capital adjustment, and the assumption by Buyer of certain liabilities. The Companys stockholders authorized the Asset Sale at a Special Meeting of Stockholders held on January 29, 2013 (the Special Meeting), and the Asset Sale was completed on January 31, 2013 (the transfer of the Companys equity interests in its Shanghai subsidiary, which was subject to the receipt of government approval, occurred on March 25, 2013). Upon the closing of the Asset Sale, Buyer acquired substantially all of the Companys operating assets relating to the Intelligent Bandwidth Management Business, including the Companys accounts receivable, inventories and prepaid and other assets, and assumed most of the Companys remaining current liabilities, including substantially all of the Companys deferred revenue and accrued warranty obligations.
In conjunction with the approval of the Asset Sale Agreement, the Companys Board of Directors (the Board) also approved the liquidation and dissolution of the Company (the Dissolution) pursuant to a Plan of Complete Liquidation and Dissolution (the Plan of Dissolution) following the completion of the Asset Sale. The Plan of Dissolution was also approved by the stockholders at the Special Meeting and, following a review of the Companys strategic alternatives for all of the Companys assets and available options for providing value to the Companys stockholders, the Company filed a certificate of dissolution with the Secretary of State of the State of Delaware (the Certificate of Dissolution) on March 7, 2013. For additional information regarding the Dissolution, please see the Companys Definitive Proxy Statement on Schedule 14A filed with the SEC on December 28, 2012 and its Current Report on Form 8-K filed with the SEC on March 8, 2013.
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In connection with the filing of the Certificate of Dissolution, on March 7, 2013, the Company closed its stock transfer books and discontinued recording transfers of its common stock, $0.001 par value per share (the Common Stock). The Common Stock, and stock certificates evidencing shares of the Common Stock, are no longer assignable or transferable on the Companys books, other than transfers by will, intestate succession or operation of law. The Company also submitted a request to The NASDAQ Stock Market (NASDAQ) to suspend trading of the Common Stock on The NASDAQ Global Select Market effective as of the close of trading on March 7, 2013 and, on March 15, 2013, the Company filed a Form 25 with the SEC to delist its Common Stock, which became effective prior to the opening of trading on March 25, 2013. Since the suspension of trading of the Common Stock on The NASDAQ Global Select Market, shares of our Common Stock held in street name with brokers have been trading in the over-the-counter market on the Pink Sheets, an electronic bulletin board established for unlisted securities.
As a result of the completion of the Asset Sale and the Companys previously announced halting of further development and marketing in connection with the IQstream Business, the Company no longer has any operating assets or revenue. Since the filing of the Certificate of Dissolution, the Company has been operating in accordance with the Plan of Dissolution, which contemplates an orderly wind down of the Companys business, including the sale or monetization of the Companys remaining non-cash assets and the satisfaction or settlement of its liabilities and obligations, including contingent liabilities and claims. As of October 25, 2014, the Company had two remaining employees.
During fiscal 2014, the Company completed the sale of its patent portfolios. On February 28, 2014, the Company completed the sale of its portfolio of 40 patents and two patent applications related to the Intelligent Bandwidth Management Business (the IBM Patents) for $2.0 million to Dragon Intellectual Property, LLC. On May 22, 2014, the Company completed the sale of its portfolio of three United States patents, six United States patent applications and certain foreign patents and patent applications related to the IQstream Business (the IQstream Patents) for $0.3 million to Citrix Systems, Inc.
The Company is continuing to pursue the sale of its remaining non-cash assets, which primarily consist of (1) approximately 102 acres of undeveloped land located in Tyngsborough, Massachusetts (the Tyngsborough Land), (2) certain technology and equipment relating to the IQstream Business and (3) the Companys investment in Tejas Networks India Private Limited (Tejas), a private company in India that provides optical transport solutions to telecommunications carriers. Following the sale of the IQstream Patents, the Company has continued to pursue the sale of certain technology and equipment relating to the IQstream Business; however, the Company does not presently expect to receive any additional material consideration for its remaining IQstream assets. In addition, given the illiquid nature of the Companys investment in Tejas and certain other factors negatively impacting the value of the Companys investment in Tejas, the Company does not presently expect to receive any material consideration in connection with any disposition of its Tejas investment.
During the fourth quarter of fiscal 2014, the Company received notice of a potential betterment fee that could be assessed against the Tyngsborough Land in connection with a public sewer project proposed by the Town of Tyngsborough (the Potential Betterment Assessment). On October 2, 2014, the sewer commission of the Town of Tyngsborough provided the Company with an estimate of the potential betterment fee relating to the Tyngsborough Land in the amount of approximately $3.47 million. At a Special Town Meeting held on October 8, 2014, the Town of Tyngsborough voted against proceeding with the sewer project. Although the Town of Tyngsborough voted against proceeding with the sewer project at that time, the Company cannot provide any assurance that the Town of Tyngsborough will not pursue a similar project in the future, nor can the Company provide any assurance as to the impact of such a project on the value of the Tyngsborough Land.
On October 10, 2014, the Company entered into a Purchase and Sale Agreement relating to the Tyngsborough Land (the Purchase Agreement) with Princeton Tyngsborough Commons, LLC (Tyngsborough Commons) for a total purchase price of $2.5 million. Of the total purchase price, amounts totaling $100,000 have been deposited with an escrow agent as nonrefundable deposits to be credited to the purchase price at closing. The Purchase Agreement contains customary provisions relating to, among other things, the condition of the title to the Tyngsborough Land, environmental conditions, representations and warranties, obligations of the parties prior to closing and apportionment of taxes. The Companys representations and warranties and obligations under the Purchase Agreement will survive the closing for a period of six months, and under no circumstances will the Company be liable to Tyngsborough Commons for more than $75,000 in the aggregate for any breaches of such representations and warranties or obligations. If the closing occurs, Tyngsborough Commons will be solely responsible for any and all costs related to the Potential Betterment Assessment. In addition, following the closing, Tyngsborough Commons
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intends to sell a portion of the Tyngsborough Land to a third party buyer. In no event will the Company be bound by the terms of any agreement with respect to such sale, provided that, in the event Tyngsborough Commons fails to fulfill its obligations under the Purchase Agreement, the Company may in its sole discretion require an assignment to the Company of Tyngsborough Commonss rights under any such agreement.
The Company currently expects to complete the sale on or about December 31, 2014 (unless an earlier date is agreed upon by the Company and Tyngsborough Commons), subject to Tyngsborough Commonss right, in its sole discretion and subject to the payment of an additional nonrefundable deposit in the amount of $100,000, to extend the closing date to February 27, 2015. The Company is entitled to terminate the Purchase Agreement if the closing does not take place on or before February 27, 2015 (or if the closing does not occur by December 31, 2014, if Tyngsborough Commons has failed to pay the additional deposit). The closing of the sale is subject to certain conditions and obligations of the parties prior to closing, some of which are outside of the Companys control and, accordingly, there can be no assurance when or if such closing will occur. If the Purchase Agreement is terminated, there can be no assurance of when, if ever, the Company will be able to sell the Tyngsborough Land. The inability to sell the Tyngsborough Land may delay the completion of the Companys liquidation and related distributions to its stockholders.
On July 29, 2014, the Company paid a liquidating cash distribution to stockholders of $0.24 per share of Common Stock, or $6.93 million in the aggregate. The Board declared this distribution after the Delaware Court of Chancery, on July 2, 2014, granted the Companys petition for a determination that, among other things, the amount set forth in the petition to be retained by the Company for anticipated wind down costs and expenses and for contingent and unknown liabilities and other possible charges and expenses is sufficient to be retained pursuant to Section 280(c) of the General Corporation Law of the State of Delaware. In accordance with the petition, any portion of the retained amount that is not required to cover wind down costs, charges, expenses or liabilities may be distributed from time to time to the Companys stockholders in the discretion of the Board in accordance with its fiduciary duties.
On October 21, 2014, Robert E. Donahue tendered his resignation from the Board, effective as of the close of business on October 27, 2014. The resignation was not due to any disagreement with the Company on any matter. Following the acceptance of Mr. Donahues resignation, the Board elected David Guerrera, the Companys current President, General Counsel and Secretary, to serve as a Class I director to fill the vacancy created by Mr. Donahues resignation, effective immediately following the effectiveness of the resignation of Mr. Donahue. Mr. Guerrera will not receive any additional compensation for his service as a director.
On December 4, 2014, the Board approved the termination of employment of Anthony J. Petrillo as the Companys Chief Financial Officer, effective as of the close of business on December 5, 2014. Mr. Petrillo will continue to serve as the Companys Principal Financial Officer and Treasurer, but will do so on a non-employee basis. For more information, see Part II, Item 5, Other Information.
Until the completion of the Dissolution, the Company will continue to pursue the liquidation to cash of its remaining non-cash assets for possible distribution to our stockholders. There can be no assurance as to the amount of consideration the Company may be able to obtain for these assets or as to any time frame within which a potential sale or other disposition of these assets might occur. Subject to uncertainties inherent in the winding up of the Companys business, the Company may make one or more additional liquidating distributions following the liquidation to cash of our non-cash assets and after payment of, or provision for, outstanding claims in accordance with Delaware law. However, the Dissolution process and the payment of any distribution to stockholders involve substantial risks and uncertainties. Accordingly, it is not possible to predict the timing or aggregate amount which will ultimately be distributed to stockholders, and no assurance can be given that the distributions will equal or exceed our estimate of net assets presented in the Companys Consolidated Statement of Net Assets. The Company will continue to analyze its estimates of liquidation expenses on an ongoing basis, and determine whether further distributions of assets to its stockholders are appropriate at such times.
Net Assets in Liquidation and Changes in Net Assets
Net assets in liquidation were $9.58 million and $9.50 million as of October 25, 2014 and July 31, 2014, respectively.
Net assets in liquidation increased $0.08 million during the first quarter of fiscal 2015 primarily as a result of an increase in other assets related to a miscellaneous receivable and changes in estimates of other expenses associated with wind down activities.
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Based on managements current best estimate of the realizable value of the Companys remaining assets relating to the IQstream Business and the Companys investment in Tejas, the Company has assigned no value to these assets for purposes of the Statement of Net Assets.
During the remainder of the Dissolution period, the Company will continue to pursue the liquidation to cash of its remaining non-cash assets for possible distribution to our stockholders. There can be no assurance as to the amount of consideration the Company may be able to obtain for these assets or as to any time frame within which a potential sale or other disposition of these assets might occur. Subject to uncertainties inherent in the winding up of the Companys business, we may make one or more additional liquidating distributions following the liquidation to cash of our non-cash assets and after payment of, or provision for, outstanding claims in accordance with Delaware law. However, the Dissolution process and the payment of any distribution to stockholders involve substantial risks and uncertainties. Accordingly, it is not possible to predict the timing or aggregate amount which may ultimately be distributed to Company stockholders, and no assurance can be given that such distributions, if made, will equal or exceed the estimate of net assets presented in the Companys Consolidated Statement of Net Assets.
Critical Accounting Policies and Estimates
Preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Management believes the most complex and sensitive judgments, because of their significance to the consolidated financial statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Managements Discussion and Analysis in the Companys Annual Report on Form 10-K for the fiscal year ended July 31, 2014 describes the significant accounting estimates and policies used in the preparation of the financial statements. Actual results in these areas could differ from managements estimates. There have been no significant changes in the Companys critical accounting policies during the first quarter of fiscal 2015.
Liquidity and Capital Resources
Total cash and cash equivalents were $11.93 million as of October 25, 2014, compared to $12.24 million as of July 31, 2014.
Cash and cash equivalents decreased by $0.31 million during the first quarter of fiscal 2015. During the first quarter of fiscal 2015, the Company paid $0.32 million in costs related to the Plan of Dissolution. During that same period, the Company received $0.01 million related to other assets.
During the remainder of the Dissolution period, the Company will continue to pursue the liquidation to cash of its remaining non-cash assets, which primarily consist of the Tyngsborough Land, certain technology and equipment relating to the IQstream Business, and our investment in Tejas, for possible distribution to our stockholders. There can be no assurance as to the amount of consideration, if any, the Company may be able to obtain for these assets or as to any time frame within which a potential sale or other disposition of these assets might occur.
Our primary source of liquidity comes from our cash and cash equivalents. We believe that our cash and cash equivalents will be sufficient to satisfy our anticipated cash requirements through the end of the Dissolution period. However, the Dissolution process involves substantial risks and uncertainties. Accordingly, the actual amount of cash remaining for distribution to stockholders following completion of the Dissolution could vary significantly from current estimates, and such risks and uncertainties could result in no excess cash available for distribution.
Commitments, Contractual Obligations and Off-Balance Sheet Arrangements
The Company has no material operating leases or inventory or other purchase commitments.
Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
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Controls and Procedures
Evaluation of Disclosure Controls and Procedures. Our management (with the participation of our President and Chief Financial Officer) evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), as of October 25, 2014. Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported on a timely basis and that such information is accumulated and communicated to management, including the President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our President and Chief Financial Officer concluded that these disclosure controls and procedures are effective and designed to ensure that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods.
Limitations on Effectiveness of Controls. Our management has concluded that our disclosure controls and procedures and internal controls provide reasonable assurance that the objectives of our control system are met. However, our management (including our President and Chief Financial Officer) does not expect that the disclosure controls and procedures or internal controls will prevent all error and/or fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, errors and instances of fraud, if any, within the company have been or will be detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurances that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.
Changes in Internal Control over Financial Reporting. During the quarter ended October 25, 2014, there was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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Part II. | Other Information |
Item 1A. | Risk Factors |
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the fiscal year ended July 31, 2014, as filed with the SEC on October 27, 2014 (our Annual Report on Form 10-K). There have been no material changes to our risk factors from those previously disclosed in our Annual Report on Form 10-K. Additional risks and uncertainties, including risks and uncertainties not presently known to us, or that we currently deem immaterial, could also have an adverse effect on our business, financial condition and/or results of operations.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
The Company has not: (1) publicly announced any programs to repurchase, or repurchased, any shares of Common Stock; or (2) sold, within the last three years, Company securities that were not registered under the Securities Act of 1933, as amended.
Item 5. | Other Information |
On December 4, 2014, the Board approved the termination of employment of Anthony J. Petrillo as the Companys Chief Financial Officer, effective as of the close of business on December 5, 2014. In connection with the termination of Mr. Petrillos employment with the Company, the Company entered into a Services Consulting Agreement with Mr. Petrillo on December 4, 2014, pursuant to which Mr. Petrillo, following the termination of his employment with the Company, will provide certain financial consulting and other services to the Company relating to the wind down (the Consulting Agreement). Under the terms of the Consulting Agreement, Mr. Petrillo will be entitled to receive $2,500 per month, and he will continue to serve as the Companys Principal Financial Officer and Treasurer on a non-employee basis.
Pursuant to the Severance Pay Agreement, dated March 29, 2013, by and between the Company and Mr. Petrillo (the Severance Pay Agreement), Mr. Petrillo, following the receipt by the Company of a release satisfactory to it, will be entitled to receive certain benefits pursuant to his Severance Pay Agreement in connection with the termination of his employment, including an amount equal to 12 months worth of his base salary and outplacement services at the Companys expense for a period of six months. Mr. Petrillo will also be eligible to receive continued paid coverage under his individual health plan for 12 months after his termination.
The foregoing descriptions of the Consulting Agreement and the Severance Pay Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of, respectively, the Consulting Agreement, which is filed as Exhibit 10.3 hereto and is incorporated herein by reference, and the Severance Pay Agreement, which is filed as Exhibit 10.6 to our Current Report on Form 8-K filed with the SEC on April 1, 2013 and is incorporated herein by reference.
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Exhibits:
(a) List of Exhibits
Number |
Exhibit Description | |
3.1 | Amended and Restated Certificate of Incorporation of the Company (2) | |
3.2 | Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company (2) | |
3.3 | Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company (3) | |
3.4 | Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company (6) | |
3.5 | Amended and Restated By-Laws of the Company (4) | |
4.1 | Specimen common stock certificate (7) | |
4.2 | See Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5 for provisions of the Certificate of Incorporation and By-Laws of the Registrant defining the rights of holders of common stock of the Company (2)(3)(4)(6) | |
4.3 | Certificate of Dissolution, as filed by Sycamore Networks, Inc. with the Secretary of State of the State of Delaware on March 7, 2013 (5) | |
10.1 | Severance Pay Agreement, dated March 29, 2013, by and between Sycamore Networks, Inc. and Anthony Petrillo (1) | |
10.2 | Purchase and Sale Agreement, dated October 10, 2014, by and between Sycamore Networks, Inc. and Princeton Tyngsborough Commons LLC (8) | |
10.3 | Services Consulting Agreement, dated December 5, 2014, by and between Sycamore Networks, Inc. and Anthony Petrillo | |
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase | |
101.LAB | XBRL Taxonomy Extension Label Linkbase | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
(1) | Incorporated by reference to Sycamore Networks, Inc.s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 1, 2013. |
(2) | Incorporated by reference to Sycamore Networks, Inc.s Registration Statement on Form S-1 (Registration Statement No. 333-30630) filed with the Securities and Exchange Commission on February 17, 2000. |
(3) | Incorporated by reference to Sycamore Networks, Inc.s Quarterly Report on Form 10-Q for the quarterly period ended January 27, 2001 filed with the Securities and Exchange Commission on March 13, 2001. |
(4) | Incorporated by reference to Sycamore Networks, Inc.s Quarterly Report on Form 10-Q for the quarterly period ended October 27, 2007 filed with the Securities and Exchange Commission on November 28, 2007. |
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(5) | Incorporated by reference to Sycamore Networks, Inc.s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 8, 2013. |
(6) | Incorporated by reference to Sycamore Networks, Inc.s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 21, 2009. |
(7) | Incorporated by reference to Sycamore Networks, Inc.s Annual Report on Form 10-K for the fiscal year ended July 31, 2010 filed with the Securities and Exchange Commission on September 24, 2010. |
(8) | Incorporated by reference to Sycamore Networks, Inc.s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 17, 2014. |
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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/ Anthony J. Petrillo |
Anthony J. Petrillo |
Chief Financial Officer and Treasurer |
(Duly Authorized Officer and Principal Financial and Accounting Officer) |
Dated: December 4, 2014
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Exhibit 10.3
SERVICES CONSULTING AGREEMENT
This Consulting Agreement (Agreement), is made effective as of the day written below (the Effective Date), by and between Sycamore Networks, Inc., having a principal place of business at 300 Brickstone Square, Andover, MA 01810 (Sycamore) and Anthony J. Petrillo (Consultant).
Recitals
(a) | Consultant is in the business of providing the types of services described in Exhibit A that is attached hereto and incorporated herein. |
(b) | Sycamore may desire, at its option and from time to time, to avail itself of the services and expertise of Consultant, and Consultant may agree to provide its services to Sycamore under the following terms. |
Now therefore, in consideration of their mutual promises and obligations contained in this Agreement, Sycamore and Consultant agree as follows:
1. | Term and Termination |
1.1 | Term. This Agreement will become effective on December 5, 2014 and may be terminated by either party at any time as provided in Section 10 below, and any SOW may be extended or terminated as provided in the SOW or Section 3.3 below. |
2. | Independent Contractors |
2.1 | Relationship. At all times Consultant shall be an independent contractor and not an employee, agent, joint venturer, or partner of Sycamore. This Agreement is non-exclusive; during the term hereof, Consultant retains the right to provide its services to others, and Sycamore retains the right to cause work similar to or different from the Services to be provided under this Agreement to be performed by any other person or entity. Nothing in this Agreement shall be construed or interpreted as creating or establishing the relationship of employer between Sycamore and Consultant. |
3. | Services to be Performed |
3.1 | Statements of Work. All work to be performed under this Agreement (the Work or Services) shall be documented in a Statement of Work complying with the requirements of this Section and the form attached as Exhibit A (a SOW). No Services may be provided by Consultant hereunder, and Sycamore shall not be liable to pay for any Services provided by Consultant, unless and until a SOW is signed by authorized representatives of both parties. Each SOW shall set forth, at a minimum, the following information: |
(i) | a description of the Work to be done; |
(ii) | the duration of Consultants assignment; and |
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CONFIDENTIAL AND PROPRIETARY INFORMATION OF
SYCAMORE NETWORKS, INC.
Rev. 04.25.05
(iv) | the fees for the Work to be performed, whether estimated or fixed, and specifying any applicable limits on total payment. |
3.2 | Modification of SOW. Modifications to existing SOWs may only be accomplished by a written amendment to such SOW signed by both parties. |
3.3 | Termination of SOW. Sycamore may, at its sole option, terminate any SOW, or any portion thereof, upon written notice, with no liability to Consultant except the obligation to pay Consultant for all Services performed through the termination date, less any expenses which Consultant may then owe to Sycamore. |
4. | Performance of Services |
4.1 | Quality of Work. Consultant shall perform the Services with the care, skill and diligence in accordance with the applicable professional standards then currently recognized by Consultants profession. Consultant shall comply with all applicable federal, state, and local laws, ordinances, codes and regulations in the performance of the Services. |
4.2 | Means of Performing Services. When on Sycamore premises, Consultant shall at all times observe Sycamores security, safety, sexual harassment, employment discrimination, code of conduct, acceptable use, insider trading and other policies. Upon request, Consultant shall certify to Sycamore in writing their compliance with those policies in a format provided by or acceptable to Sycamore. |
5. | Compensation |
5.1 | Fees. The applicable schedule of fees for Work performed by Consultant shall be set forth as part of each SOW. |
5.3 | Expenses. Except as otherwise agreed in the applicable SOW, Sycamore agrees to reimburse Consultant for reasonable travel and meal expenses associated with business travel undertaken by Consultant at the request of Sycamore in connection with the performance of the Services, which expenses are: (i) in accordance with Sycamores standard expense policies; and (ii) which Sycamore has approved in advance. Consultant must maintain adequate records of those expenses, if any, which Sycamore agrees to reimburse. No expenses will be paid for travel to and from Sycamores Andover office to Consultants residence. |
6. | Intellectual Property Rights |
6.1 | Confidentiality. Consultant shall maintain in strict confidence all information of a confidential or proprietary nature (the Proprietary Information) that Consultant receives or acquires in connection with the Services. Consultant agrees that it shall use such Proprietary Information only for the purposes of performing its obligations under this Agreement, and that it shall disclose such Proprietary Information only to its personnel who have a need to know such Proprietary Information for the purposes of this Agreement. Proprietary Information shall not include: (i) information generally available to the public; (ii) information released by Sycamore generally without restriction; (iii) information independently developed or acquired by Consultant without reliance on or reference to, in any way, protected information of Sycamore; or (iv) information which Sycamore previously agreed in writing could be used and disclosed by the Consultant or its personnel without restriction. |
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6.2 | Ownership of Work Product. All copyrights, patents, trade secrets, and other intellectual property rights associated with any and all ideas, concepts, discoveries, techniques, designs, inventions, processes, procedures, formulas, methods, software or other works of authorship developed or created by Consultant during the course of performing Services (collectively, the Work Product) shall belong exclusively to Sycamore and shall, to the extent possible, be considered a work made for hire for Sycamore within the meaning of the US Copyright Act and any other applicable law. Consultant automatically assigns at the time of creation of the Work Product without any requirement of further consideration, all rights, title, and interest Consultant may have in such Work Product, including any copyrights and other intellectual property rights pertaining to such works. Consultant agrees to execute upon Sycamores request a signed transfer of Inventions or copyrights therein to Sycamore for all Inventions subject to copyright protection that result from Consultants work for Sycamore under this Agreement. Upon Sycamores request, Consultant shall take such further actions, and shall cause its personnel (if any) to take such further actions, including execution and delivery of instruments of conveyance, as may be appropriate to give full and proper effect to such assignment. |
6.3 | Residual Rights of Personnel. Consultant shall be free to use and employ all general skills, know-how, and expertise, and to use, disclose, and employ any generalized ideas, concepts, know-how, methods, techniques, or skills gained or learned during the course of any assignment, so long as such information is acquired or applied without disclosure of any of Sycamores Proprietary Information, and without any unauthorized use or disclosure of any Work Product. |
7. | Warranty |
7.1 | Warranty. Consultant warrants that the Services shall be performed in a good and workmanlike manner. |
7.2 | No Conflict of Interest. Consultant agrees during the term of this Agreement not to accept work or enter into a contract or accept an obligation that would cause Consultant to not perform Consultants obligations under this Agreement or the scope of services for Sycamore or that would cause a breach of this Agreement. |
Consultant warrants that to the best of his knowledge, there is no other contract or duty on his part now in existence inconsistent with this Agreement, unless a copy of such contract or a description of such duty is attached to this Agreement as Exhibit B.
8. | Limitation of Liability |
8.1 | Limitation. IN NO EVENT SHALL CONSULTANT OR SYCAMORE BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL, SPECIAL, OR INDIRECT DAMAGES, REGARDLESS OF WHETHER IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, EXCEPT FOR ANY BREACH BY CONSULTANT OF ANY OF THE PROVISIONS OF SECTIONS 6.1 AND 6.2 HEREOF, OR FOR ANY CLAIM BY SYCAMORE UNDER SECTION 8.1 HEREOF. |
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9. | Termination |
9.1 | Termination. Either party shall have the right to terminate this Agreement, with or without cause, upon thirty (30) days written notice to the other. All sums owed by either party to the other shall become due and payable upon termination, and neither party will be liable to the other or to any other person because of termination of this Agreement. Notwithstanding the foregoing, however, this Agreement shall remain in effect in any event for as long as Services are due under a SOW executed prior to the termination hereof. |
9.2 | Survival. Except for obligations that by their sense and context are intended to survive the performance hereof by either or both parties, including but not limited to Section 6 (Intellectual Property Rights) which shall survive completion, performance, termination or expiration of this Agreement, neither party shall have any further obligation to the other after termination, provided that neither Sycamore nor Consultant shall waive the right to obtain any amounts due to them for Services rendered prior to termination, or for refund of pre-paid Service charges, as the case may be. |
9.3 | Cooperation. Upon the earlier of an issuance of a notice of termination or the date of termination of this Agreement, the parties shall cooperate with each other in good faith to finalize their business relationship under this Agreement. |
10. | General Provisions |
10.1 | Governing Law. This Agreement will be governed and construed in accordance with the laws of the Commonwealth of Massachusetts (exclusive of its conflict of laws provisions) as applied to transactions taking place wholly within Massachusetts between Massachusetts residents. |
10.2 | Notices. All notices and other communications pertaining to this Agreement shall be in writing, shall be addressed as shown on the first page, and shall be deemed to have been given by a party hereto if: (i) personally delivered; (ii) sent by certified first class mail, return receipt requested; (iii) sent by facsimile device with confirmation of receipt and with a copy simultaneously sent by certified first class mail, return receipt requested; or (iv) sent by commercial overnight courier with written verification of receipt. A notice sent by certified mail shall be deemed to be given on the fifth business day after the mailing date; all other notices shall be deemed given on the date received. Either party may change its address from time to time by giving notice to that effect as provided herein. |
10.3 | Assignment. Neither this Agreement nor any of the rights or obligations of Consultant arising under this Agreement may be assigned or transferred without Sycamore s prior written consent. |
10.4 | Execution, Counterparts, Severability and Headings. This Agreement shall not be binding upon Sycamore until it has been executed by a duly authorized headquarters representative of Sycamore. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which taken together shall constitute one and the same Agreement In the event that any provision contained in this Agreement should be held to be unenforceable, such unenforceability shall not affect any of the other provisions herein. The section and paragraph headings are contained herein for ease of use, and are not intended to either broaden or limit the scope of the terms hereof. |
10.5 | Legal Fees. If any proceeding arises between the parties with respect to a dispute to the terms in this Agreement, the prevailing party in such proceeding shall be entitled to receive its reasonable attorney fees, expert witness fees and out-of-pocket costs incurred in connection with such proceeding, in addition to any relief it may be awarded. |
4
10.6 | Entire Agreement. This Agreement with all SOWs is intended to be the sole and complete statement of the obligations of the parties as to the Work to be performed and supersedes all previous understandings, negotiations and proposals, and may not be altered, amended or modified, except in writing, signed by the duly authorized representatives of the parties. |
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
5
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in duplicate by their duly authorized representatives as of the effective date written below.
SYCAMORE NETWORKS, INC. | CONSULTANT/Anthony J. Petrillo | |||
/s/ David Guerrera |
/s/ Anthony J. Petrillo | |||
Authorized Signature | Authorized Signature | |||
David Guerrera |
Anthony J. Petrillo | |||
Name | Name | |||
President & General Counsel |
N/A | |||
Title | Title | |||
12/4/14 |
12/4/14 | |||
Date | Date |
6
EXHIBIT A
Form of Statement of Work
to Sycamore Networks, Inc. Services Consulting Agreement
This Statement of Work shall be governed by the terms of a Services Consulting Agreement entered into between Sycamore Networks, Inc. and Consultant and effective as of the Effective Date set forth below.
1. | Name of Consultant: Anthony J. Petrillo |
2. | Description of Services to be Performed: To assist in the performance of certain financial and accounting services and to provide certain other services on an as-needed basis, as requested and directed by Sycamore from time to time. |
3. | Names of Persons to Perform the Services: Anthony J. Petrillo |
4. | Location of Performance of Services: Sycamores offices located at 300 Brickstone Square, Andover, MA, Mr. Petrillos residence, or as otherwise directed by Sycamore. |
5. | Dates Services to be Performed: From December 5, 2014 to March 7, 2016, with a mutual option to renew for additional one (1) month terms at the rates set forth below, but subject to early termination in accordance with the terms of the Services Consulting Agreement. |
6. | Fees to be Paid for the Services: Sycamore will pay consultant $2,500 per month. Thereafter, in the event Sycamore and Mr. Petrillo decide Consultant shall be retained for one or more additional monthly terms, Sycamore will pay Consultant an agreed upon rate. |
SYCAMORE NETWORKS, INC. | CONSULTANT/ Anthony J. Petrillo | |
/s/ David Guerrera |
/s/ Anthony Petrillo | |
Authorized Signature |
Authorized Signature | |
David Guerrera |
Anthony J. Petrillo | |
Name | Name | |
President & General Counsel |
N/A | |
Title | Title | |
12/4/14 |
12/4/14 | |
Date | Date |
7
EXHIBIT B
CONFLICT OF INTEREST DISCLOSURE
None.
8
EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, David Guerrera, certify that:
1) | I have reviewed this Quarterly Report on Form 10-Q of Sycamore Networks, Inc.; |
2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4) | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5) | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: December 4, 2014
/s/ David Guerrera |
David Guerrera |
President, General Counsel and Secretary |
EXHIBIT 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Anthony J. Petrillo, certify that:
1) | I have reviewed this Quarterly Report on Form 10-Q of Sycamore Networks, Inc.; |
2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4) | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5) | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: December 4, 2014
/s/ Anthony J. Petrillo |
Anthony J. Petrillo |
Chief Financial Officer and |
Treasurer |
EXHIBIT 32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Sycamore Networks, Inc. (the Company) on Form 10-Q for the period ending October 25, 2014 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, David Guerrera, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company, as of, and for the periods presented in the Report.
/s/ David Guerrera |
David Guerrera |
President, General Counsel and Secretary |
December 4, 2014 |
EXHIBIT 32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Sycamore Networks, Inc. (the Company) on Form 10-Q for the period ending October 25, 2014 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Anthony J. Petrillo, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company, as of, and for the periods presented in the Report.
/s/ Anthony J. Petrillo |
Anthony J. Petrillo |
Chief Financial Officer and Treasurer |
December 4, 2014 |
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Commitments and Contingencies
|
3 Months Ended |
---|---|
Oct. 25, 2014
|
|
Commitments and Contingencies | 6. Commitments and Contingencies Litigation None. Guarantees The Company’s guarantees requiring disclosure consist of its indemnification obligations for officers and directors and for other claims. Prior to the Asset Sale and the Dissolution, in the normal course of business, the Company agreed to indemnify other parties, including customers, lessors and parties to other transactions with the Company with respect to certain matters. Historically, payments made by the Company under these agreements had not had a material impact on the Company’s operating results or financial position. Furthermore, most of these obligations were assumed by Buyer in connection with the Asset Sale. Accordingly, the Company has not recorded a liability for these agreements as of October 25, 2014 or July 31, 2014, as the Company believes the exposure for any related payments is not material. We have entered into our standard form of indemnification agreement with each of our directors and executive officers, which is in addition to the indemnification provided for in our amended and restated certificate of incorporation, as amended. The Plan of Dissolution also provides that we continue to indemnify our directors and executive officers in accordance with such agreements and our amended and restated certificate of incorporation, as amended. The indemnification agreements, among other things, provide for indemnification of our directors and executive officers for a number of expenses, including attorneys’ fees and other related expenses, as well as certain judgments, fines, penalties and settlement amounts incurred by any such person in any action, suit or proceeding, including any action by or in the right of the Company, arising out of such person’s service as a director or executive officer of the Company or any other company or enterprise to which the person provided services at our request. The Company did not incur any expense under these arrangements during the first quarter of fiscal 2015 or fiscal 2014. Due to the Company’s inability to estimate liabilities in connection with these agreements, if and when they might be incurred, the Company has not recorded any liability for these agreements as of October 25, 2014 or July 31, 2014. During the Dissolution period, we intend to continue to indemnify each of our current and former directors and executive officers to the extent permitted under Delaware law, our amended and restated certificate of incorporation, as amended, and the indemnification agreements. The Company has also continued to maintain directors’ and officers’ insurance coverage since the filing of the Certificate of Dissolution, and intends to maintain such coverage through the end of the Dissolution period. |