Stockholders' Equity | 12 Months Ended |
Jun. 30, 2014 |
Stockholders' Equity | ' |
-10 | Stockholders’ Equity | | | | | | | | | | | | | | | |
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| (a) | Tax Benefits Preservation Agreement | | | | | | | | | | | | | | |
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On January 28, 2012, the Company entered into a Tax Benefits Preservation Agreement that entitles each holder of the Company’s common stock to purchase one ten-thousandth of a share of Series A Junior Participating Cumulative Preferred Stock at a price of $15 per one ten-thousandth of a share, subject to adjustment, upon the occurrence of certain requirements. |
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| (b) | Stock Plans | | | | | | | | | | | | | | |
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On October 16, 2005, the Company’s 1995 Plan (formerly the Software.com, Inc. 1995 Stock Option Plan) (the “1995 Stock Plan”) expired, and, accordingly, options can no longer be granted from the 1995 Stock Plan. A total of 17,743,215 shares of Company common stock had previously been authorized for issuance under the 1995 Stock Plan. As of June 30, 2014, options to purchase a total of 3,200 shares were outstanding under the 1995 Stock Plan. |
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On September 25, 2006, the Company’s 1996 Stock Plan (formerly the Phone.com, Inc. 1996 Stock Plan) (the “1996 Stock Plan”) expired and, accordingly, options can no longer be granted from the 1996 Stock Plan. A total of 12,262,282 shares of Company common stock had previously been authorized for issuance under the 1996 Stock Plan. As of June 30, 2014, options to purchase a total of 6,000 shares were outstanding under the 1996 Stock Plan. |
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The Openwave Systems Inc. Amended and Restated 1999 Directors’ Equity Compensation Plan (the “Directors’ Plan”) which was approved by the shareholders in December 2009, provides for the grant of non-statutory stock options to non-employee directors (“Outside Directors”). In September 2013, the Board approved an amendment and restatement of the Directors’ Plan, which increased the number of shares authorized for issuance by 2,000,000 shares from 1,650,000 to 3,650,000 shares. The above change to the Directors’ Plan was approved by the Company’s shareholders in November 2013. Options and awards granted to new or existing Outside Directors under the Directors’ Plan vest ratably over a period of three years. The Directors’ Plan also provides for the acceleration of options upon the dismissal of an Outside Director from the Board upon or within 24 months following a change in control of the Company. The exercise price of options granted under the Directors’ Plan is equal to the fair market value of the Company’s common stock on the date of grant. Under the Directors’ Plan, stock option grants have a term of ten years. As of June 30, 2014, the Company had a total of 1,403,393 shares of the Company’s common stock available for grant, and a total of 1,080,097 shares were outstanding under the Directors’ Plan. |
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The Openwave Systems Inc. 2001 Stock Compensation Plan was terminated by resolution of the Board of Directors in November of 2013. All shares available for grant were retired. |
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The Openwave Systems Inc. Amended and Restated 2006 Stock Incentive Plan, as amended (“2006 Plan”), which was approved by the stockholders in December 2008, provides incentive stock options, non-statutory stock options, restricted stock purchase rights and stock appreciation rights to employees and consultants of the Company and its affiliates. The plan also provides restricted stock bonus, phantom stock units, restricted stock units, performance shares bonus and performance share units. In September 2013, the Board approved an amendment and restatement of the 2006 Plan, which increased the number of shares authorized for issuance by 2,000,000 shares from 17,000,000 to 19,000,000 shares. The above change to the 2006 Plan was approved by the Company’s shareholders in November 2013. Each share of Company common stock issued pursuant to a stock award issued under this Plan shall reduce the Share Reserve by one (1) share; provided, however that for each Full-Value Stock Award, the share reserve shall be reduced by one and one-half (1.5) shares. The exercise price of options granted under the 2006 Plan is usually equal to the fair market value of the Company’s common stock on the date of grant. Options issued under the 2006 Plan generally expire ten years from the date of grant. Vesting periods are determined by the plan administrator and generally provide for shares to vest ratably over a period of three to four years, with options for new employees generally including a one-year cliff period. As of June 30, 2014, the Company had a total of 4,023,822 shares of Company common stock available for grant, and a total of 3,215,164 shares were outstanding under the 2006 Stock Plan. |
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The following table summarizes the number of common shares available for issuance under the plans discussed above as of June 30, 2014: |
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Common Shares available for Issuance | | | | | | | | | | | | | | | |
1995 and 1996 Stock Plans | | | — | | | | | | | | | | | | | |
Director’s Plan | | | 1,403,393 | | | | | | | | | | | | | |
2006 Plan | | | 4,023,822 | | | | | | | | | | | | | |
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Total | | | 5,427,215 | | | | | | | | | | | | | |
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| (c) | Stock Purchase Rights | | | | | | | | | | | | | | |
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Certain outstanding stock purchase rights are subject to a restricted stock purchase agreement whereby the Company has the right to repurchase the stock upon the voluntary or involuntary termination of the purchaser’s employment with the Company at the purchaser’s purchase price. As of June 30, 2014, 24,000 shares remain subject to repurchase at a weighted-average purchase price of $0.00 per share. |
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| (d) | Employee Stock Purchase Plans | | | | | | | | | | | | | | |
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Under the Company’s Employee Stock Purchase Plan (“ESPP”), eligible employees could previously purchase Company common stock through payroll deductions at a price equal to 85% of the lower of the fair market value of the Company’s common stock as of the beginning and the end of the six month offering periods. The amount of stock-based compensation expense recognized relating to the ESPP during the 2013 fiscal year was immaterial. |
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During the 2013 and 2012 fiscal years, 5,627 and 84,740, respectively, were purchased by employees under the ESPP. The ESPP was suspended in November 2012. Accordingly, no shares were purchased by employees in the 2014 fiscal year. |
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The fair value used in recording the stock-based compensation expense associated with the ESPP was estimated for each offering period using the Black-Scholes-Merton option pricing model. The expected term was six months, coinciding with each offering period. Expected volatilities were based on the historical volatility experienced in the Company’s stock price, as well as implied volatility in the market traded options on Unwired Planet common stock when appropriate. The risk-free rate for the expected term of the option was based on the U.S. Treasury yield curve in effect at the time of the grant. |
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| | Fiscal Year Ended | | | | | | | | | |
June 30, | | | | | | | | |
| | 2013 | | | 2012 | | | | | | | | | |
Expected volatility | | | 61.4 | % | | | 52.7- 92.0 | % | | | | | | | | |
Expected dividends | | | — | | | | — | | | | | | | | | |
Expected term (years) | | | 0.5 | | | | 0.5 | | | | | | | | | |
Risk-free rate | | | 0.1 | % | | | 0.1 | % | | | | | | | | |
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| (e) | Stock-based compensation | | | | | | | | | | | | | | |
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The fair value of each option grant is estimated on the date of grant using the Black-Scholes-Merton option pricing model and assumptions noted in the following table. The Company estimates the expected term for new grants based upon actual historical experience. The Company’s expected volatility for the expected term of the option is based upon the historical volatility experienced in the Company’s stock price. To the extent volatility of its stock price increases in the future, the Company’s estimates of the fair value of options granted in the future could increase, thereby increasing stock-based compensation expense in future periods. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company determines the fair value of nonvested shares based on the NASDAQ closing stock price on the date of grant. |
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The ranges of assumptions used to value option grants were as follows: |
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| | Fiscal Year Ended June 30, | | | | | |
| | 2014 | | | 2013 | | | 2012 | | | | | |
Expected volatility | | | 64.6 - 68.7 | % | | | 62.1 - 73.6 | % | | | 72.2 - 78.5 | % | | | | |
Expected dividends | | | — | | | | — | | | | — | | | | | |
Expected term (years) | | | 2.60 - 3.04 | | | | 2.66 - 5.87 | | | | 3.60 - 6.07 | | | | | |
Risk-free rate | | | 0.49 - 0.9 | % | | | 0.4 - 1 | % | | | 0.6 - 1.2 | % | | | | |
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A summary of option activity through June 30, 2014 is presented below (in thousands except per share and year amounts): |
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Options | | Shares | | | Weighted | | | Weighted | | | Aggregate | |
Average | Average | Intrinsic |
Exercise | Remaining | Value |
Price | Contractual | |
| Term (years) | |
Outstanding at June 30, 2011 | | | 9,889 | | | $ | 3.21 | | | | | | | | | |
Options granted | | | 4,773 | | | | 1.76 | | | | | | | | | |
Exercised | | | (1,783 | ) | | | 1.37 | | | | | | | | | |
Forfeited, cancelled or expired | | | (4,628 | ) | | | 2.55 | | | | | | | | | |
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Outstanding at June 30, 2012 | | | 8,251 | | | $ | 3.14 | | | | | | | | | |
Options granted | | | 991 | | | | 1.64 | | | | | | | | | |
Exercised | | | (1,046 | ) | | | 1.63 | | | | | | | | | |
Forfeited, cancelled or expired | | | (2,341 | ) | | | 5.95 | | | | | | | | | |
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Outstanding at June 30, 2013 | | | 5,855 | | | $ | 2.03 | | | | | | | | | |
Options granted | | | 591 | | | | 1.56 | | | | | | | | | |
Exercised | | | (1,626 | ) | | | 1.58 | | | | | | | | | |
Forfeited, cancelled or expired | | | (1,668 | ) | | | 2.98 | | | | | | | | | |
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Outstanding at June 30, 2014 | | | 3,152 | | | $ | 1.68 | | | | 4.65 | | | $ | 1,870 | |
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Exerciseable at June 30, 2014 | | | 2,124 | | | $ | 1.71 | | | | 2.61 | | | $ | 1,209 | |
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The weighted average grant date fair value of options per share granted during the 2014, 2013, and 2012 fiscal years was $0.67, $0.72, and $0.98, respectively. The total intrinsic value of options exercised during the 2014, 2013, and 2012 fiscal years was $0.4 million, $2.5 million, and $1.7 million, respectively. Upon the exercise of options, the Company issues new common stock from its authorized shares. |
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A summary of the activity of the Company’s nonvested share awards through June 30, 2014, including discontinued operations is presented below (in thousands except per share amounts): |
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Nonvested shares - Restricted Stock Awards | | Shares | | | Grant Date | | | | | | | | | |
Fair Value | | | | | | | | |
Per Share | | | | | | | | |
Outstanding at June 30, 2011 | | | 197 | | | $ | 2.07 | | | | | | | | | |
Granted | | | 151 | | | | 1.67 | | | | | | | | | |
Vested | | | (168 | ) | | | 1.86 | | | | | | | | | |
Forfeited | | | — | | | | — | | | | | | | | | |
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Outstanding at June 30, 2012 | | | 180 | | | $ | 1.93 | | | | | | | | | |
Granted | | | 90 | | | | 1.42 | | | | | | | | | |
Vested | | | (164 | ) | | | 1.85 | | | | | | | | | |
Forfeited | | | — | | | | — | | | | | | | | | |
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Outstanding at June 30, 2013 | | | 106 | | | $ | 1.61 | | | | | | | | | |
Granted | | | — | | | | — | | | | | | | | | |
Vested | | | (82 | ) | | | 1.62 | | | | | | | | | |
Forfeited | | | — | | | | — | | | | | | | | | |
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Outstanding at June 30, 2014 | | | 24 | | | $ | 1.57 | | | | | | | | | |
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A summary of the activity of the Company’s restricted stock units through June 30, 2014 is presented below (in thousands except per share amounts): |
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Restricted Stock Units | | Restricted | | | Weighted | | | | | | | | | |
Stock Units | Average | | | | | | | | |
| Grant Date | | | | | | | | |
| Fair Value | | | | | | | | |
Outstanding at June 30, 2011 | | | — | | | $ | — | | | | | | | | | |
Granted | | | 2,504 | | | | 2.04 | | | | | | | | | |
Vested | | | (2,175 | ) | | | 2.59 | | | | | | | | | |
Forfeited | | | (53 | ) | | | 1.93 | | | | | | | | | |
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Outstanding at June 30, 2012 | | | 276 | | | $ | 2.04 | | | | | | | | | |
Granted | | | 2,315 | | | | 1.55 | | | | | | | | | |
Vested | | | (1,014 | ) | | | 1.91 | | | | | | | | | |
Forfeited | | | (20 | ) | | | 1.9 | | | | | | | | | |
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Outstanding at June 30, 2013 | | | 1,557 | | | | 1.4 | | | | | | | | | |
Granted | | | 523 | | | | 1.51 | | | | | | | | | |
Vested | | | (907 | ) | | | 1.73 | | | | | | | | | |
Forfeited | | | (20 | ) | | | 1.9 | | | | | | | | | |
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Outstanding at June 30, 2014 | | | 1,153 | | | $ | 1.65 | | | | | | | | | |
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The aggregate grant date fair value of RSU’s granted during the 2014, 2013, and 2012 fiscal years was $0.7 million, $3.6 million and $5.1 million, respectively. |
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Stock-based compensation expense to employees and directors totaled $2.2 million, $4.4 million, and $8.4 million for the 2014, 2013, and 2012 fiscal years, respectively. |
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As of June 30, 2014, there was $2.1 million of total unrecognized compensation cost related to all unvested share awards and options. That cost is expected to be recognized on a declining basis as the shares vest over the next three years. |
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Consultant compensation |
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Incentive Fee |
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During the 2013 fiscal year, the Company issued one million shares of Company common stock to a consultant for performance under a services contract in connection with the Ericsson transaction. The fair value associated with this stock issuance of $1.9 million was recognized as stock-based compensation expense during the year ended June 30, 2013. An additional 500,000 shares of Company common stock will be issued if prior to August 14, 2014 the volume weighted average trading price of the Company’s common stock over any 20 consecutive trading days equals or exceeds $3.00 (“First Incentive Fee”). The First Incentive Fee expired on August 14, 2014, as the share price condition was not met. An additional 700,000 shares of Company common stock will be issued if prior to February 12, 2015 the volume weighted average trading price of the Company’s common stock over any 20 consecutive trading days equals or exceeds $5.00 (“Second Incentive Fee”). The awards related to the Incentive Fees will only vest if the respective Company common stock price targets are met. The Incentive Fees are classified as a liability on the Company’s balance sheet. The Company is required to settle the Incentive Fees by transferring cash in the event a change of control transaction occurs. The fair value of the awards for the Incentive Fees are remeasured on a quarterly basis using a Monte Carlo simulation method and any changes in fair value are recognized as expense or income in the statement of operations. |
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The amount of stock-based compensation expense in the 2013 fiscal year related to the issuance of the Incentive Fees was $1.5 million and included in general and administrative expenses. Subsequent changes in the fair value were recognized in Other Income and Expense. Other Income relating to the change in liability value for the 2014 and 2013 fiscal years were $0.6 million and $0.8 million, respectively. The first tranche of Company common stock issued was modified at the end of the fourth quarter of the 2013 fiscal year to add an additional six months to the issue date from February 14, 2014 to August 14, 2014. This modification was in relation to the Financing Agreements and therefore considered an equity issuance cost relating to the Transaction. The cost associated with the modification was $0.2 million and was recognized in the fourth quarter of the 2013 fiscal year. |
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The assumptions used in the Monte-Carlo simulation model to value the Company’s above market-condition share-based payment award are as follows: |
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| | Fiscal Year Ended June 30, | | | | | | | | | |
| | 2014 | | | 2013 | | | | | | | | | |
Expected volatility | | | 60.24 - 72.41 | % | | | 62.28 - 72.38 | % | | | | | | | | |
Expected dividents | | | — | | | | — | | | | | | | | | |
Risk-free rate | | | 0.08 - 0.18 | % | | | 0.24 - 0.28 | % | | | | | | | | |
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The estimated fair value of the above Incentive Fee award liabilities was $0.3 million and $0.9 million at June 30, 2014 and June 30, 2013, respectively. The First Incentive Fee expired on August 14, 2014, as the share price condition was not met. |
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| (f) | CEO Separation and Bonus | | | | | | | | | | | | | | |
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In February 2013, the Company announced that Michael Mulica intended to step down as the Company’s President and Chief Executive Officer as of May 2013 pursuant to a separation agreement entered into between the Company and Mr. Mulica (the “Separation Agreement”). The Separation Agreement provided that upon Mr. Mulica’s exit, all of his unvested equity awards covering shares of the Company’s common stock shall automatically be accelerated so as to become immediately and completely vested, and the post-termination exercise periods for all of his stock options shall be extended for an additional six months. In addition, Mr. Mulica is entitled to salary continuation for twelve months which commenced upon separation and was eligible for an incentive cash award for the first six months of 2013 for an amount of up to 150% of Mr. Mulica’s base salary, based on certain performance criteria detailed in the Separation Agreement and prorated for the amount of days actually worked. Mr. Mulica is also entitled to certain continuing benefits and outplacement assistance. Additionally, in February 2013, in recognition of Mr. Mulica’s efforts in connection with the closing of the Company’s patent transaction with Ericsson, the Company’s Board of Directors awarded Mr. Mulica a $200,000 cash bonus and 300,000 restricted stock units that vested in accordance with the terms of the Separation Agreement. For the 2013 fiscal year, the Company incurred $0.4 million in expense and $2.3 million in stock-based compensation for the separation of the CEO and bonus to the CEO. |
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| (g) | Board of Directors Resignations | | | | | | | | | | | | | | |
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As previously announced in July 2013 Robin Abrams resigned from the Board of Directors and in March 2014 both Peter Feld and Michael Mulica also resigned from the Board of Directors. In connection with Ms. Abrams’ and Messrs. Feld’s and Mulica’s resignations (1) the vesting of all unvested stock options and restricted stock units were accelerated, (2) the Company’s right to repurchase the restricted share awards held by Ms. Abrams and Mr. Feld lapsed, and (3) the post termination exercise period for all options were extended by fifteen months. As a result of the above resignations, the Company incurred $0.1 million in expense and $0.6 million in stock-based compensation for the above modifications. |
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| (h) | Registered Direct Offering and Backstop Purchase Agreement | | | | | | | | | | | | | | |
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On June 28, 2013, Unwired Planet entered into multiple Financing Agreements. The agreements included a Note Purchase Agreement, a Securities Purchase Agreement and a Backstop Purchase Agreement (collectively “Transactions” or “Financing Agreements”). In connection with these Financing Agreements, the Company entered into an agreement with a third party to pay certain fees in cash and stock for financial advisory services. |
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Registered Direct Offering |
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On June 28, 2013, Company entered into a Securities Purchase Agreement for a Registered Direct Offering with Indaba that provided for issuance of 7,530,120 shares of Company common stock, par value $0.001, at $1.66 per share for $12.5 million. |
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The Securities Purchase Agreement contained customary representations, warranties and covenants and includes the terms and conditions for the sale of the Company’s common stock, indemnification and contribution obligations and other terms and conditions customary in agreements of this type. Additionally, the Securities Purchase Agreement provided Indaba with certain Board of Director designation rights for as long as Indaba continues to maintain a voting percentage equal to or greater than 5% of the total shares of Company common stock outstanding, or as long as Indaba continues to maintain a voting percentage equal to or greater than 3% of the total shares outstanding and hold at least 50% of the Senior Secured Notes, in each case subject to the terms and conditions under the Securities Purchase Agreement and subject to applicable rules and published guidance of The NASDAQ Stock Market LLC, including, but not limited to, listing rule 5640 (or any successor rule). |
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Rights Offering and Backstop Purchase Agreement |
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In September 2013, the Company issued a total of 7,530,120 shares of common stock at a price of $1.66 per share and received gross proceeds of $12.5 million as part a rights offering to shareholders of record on July 8, 2013. In connection with rights offering the Company entered into a backstop purchase agreement with Indaba Capital Fund, L.P. (Indaba) whereby Indaba was obligated to purchase shares in the rights offering not purchased by the Company’s then existing shareholders. In consideration for Indaba’s backstop purchase agreement, the Company agreed to and issued Indaba 225,904 shares as a backstop fee. Indaba purchased 2,255,461 of the 7,530,120 shares issued in the rights offering as part of their backstop purchase agreement. |
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Financial Advisory Services |
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In connection with these Transactions, the Company entered into an agreement on June 28, 2013 with a consultant and agreed to pay certain fees in cash and through the issuance of Company common stock in exchange for financial advisory services. The agreed upon fee was 2% of gross proceeds from the Transactions payable in cash and 2% of gross proceeds from the Transactions payable through the issuance of Company’s common stock, par value $.001. The number of shares issued was calculated based on the total gross proceeds from the Transactions divided by the price per share of Company common stock at the closing of the Transactions. The Company issued 549,450 shares to the consultant for the above described services in September 2013. |
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Accounting for the Transactions |
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The Financing Transactions, including the Notes, Registered Direct Offering and the Backstop Purchase Commitment and Backstop Fee were accounted for using fair value measurement. Because these Transactions were entered into together, they were accounted for using relative fair value. Various factors were considered in determining the fair value of the Transactions. These factors included (1) closing price per share on the date the Transactions closed; (2) cash interest payments on the Notes; (3) payment-in-kind payments on the Notes; (4) principal prepayment of the Notes; (5) the Notes maturity date; (6) the Notes debt covenants; (7) discount rates; (8) market interest rates; (9) Company projections; (10) comparable issues and spread analysis; (11) Capital Asset Pricing Model scenarios; (12) and backstop purchase commitment scenarios. |
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The following table summarizes the fair value of the Company’s Notes using level 3 inputs (in thousands): |
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| | June 30, 2013 | | | | | | | | | |
| | Significant | | | Total | | | | | | | | | |
Unobservable | | | | | | | | |
Inputs (Level 3) | | | | | | | | |
Senior Secured Notes | | $ | 22,066 | | | $ | 22,066 | | | | | | | | | |
Payment-In-Kind Note | | | 26 | | | | 26 | | | | | | | | | |
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Carrying value of Note | | $ | 22,092 | | | $ | 22,092 | | | | | | | | | |
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The fair value of the individual Transactions was determined and in total the fair value of the Transaction was $36.9 million. Total proceeds received for these Transactions were $36.9 million on June 28, 2013. Fair value was allocated based on the individual fair values in total as follows (in thousands): |
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Proceeds allocated: | | | | | | | | | | | | | | | | |
Senior Secured Notes | | $ | 22,068 | | | | | | | | | | | | | |
Registerd Direct | | | 13,491 | | | | | | | | | | | | | |
Backstop commitment | | | 854 | | | | | | | | | | | | | |
Backstop fee | | | 437 | | | | | | | | | | | | | |
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| | $ | 36,850 | | | | | | | | | | | | | |
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The discount on the Senior Secured Notes was determined as the difference between the face value of the Notes and the relative fair value of the Notes and totaled $2.9 million. Debt issuance costs of $1.3 million were recorded in Debt issue costs and other assets, net on the accompanying Consolidated Balance Sheets. Both the Notes discount and debt issuance costs will be amortized over the life of the Notes using the effective interest rate method as interest expense. |
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Interest payable on the Senior Secured Notes is payment-in-kind up to and inclusive of the second anniversary. The payment-in-kind Notes accrue interest each period. All payment-in-kind payments are reflected in the Notes Register with the Indenture trustee and no new notes are issued when there is a payment-in-kind payment. |
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The relative fair value of the Registered Direct Offering was determined to be $13.5 million based on the fair value of all Transactions relative to the total proceeds. Equity issuance costs of $0.8 million were charged against equity proceeds. |
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The Backstop Purchase Commitment and Backstop Fee are forward contracts and were accounted for as equity instruments. The fair value of the Backstop Purchase Commitment and Backstop Fee were determined to be $0.9 million and $0.4 million, respectively. |
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The following table summarizes the issuance of Company common stock related to the equity financing and the issuance costs related to the equity financing in the consolidated statement of stockholders equity as of June 30, 2013 (in thousands). |
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| | Common Stock | | | Additional Paid | | | | | |
In Capital | | | | |
| | Shares | | | Amount | | | | | | | | |
Registered Direct Offering | | | 7,530 | | | $ | 8 | | | $ | 13,483 | | | | | |
Backstop Purchase | | | | | | | | | | | | | | | | |
Commitment | | | — | | | | — | | | | 854 | | | | | |
Backstop Fee | | | — | | | | — | | | | 437 | | | | | |
Third Party Vendor Financial | | | | | | | | | | | | | | | | |
Advisory Consultant Fee | | | — | | | | — | | | | 750 | | | | | |
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| | | 7,530 | | | | 8 | | | | 15,524 | | | | | |
Less Issuance Costs | | | — | | | | — | | | | (774 | ) | | | | |
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Balance as of June 30, 2013 | | | 7,530 | | | $ | 8 | | | $ | 14,750 | | | | | |
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Refer to Financing Agreements in Note 8 of the Notes to the Consolidated Financial Statements. |