Redeemable Preferred Stock And Warrants | 6 Months Ended |
Dec. 31, 2014 |
Redeemable Preferred Stock And Warrants [Abstract] | |
Redeemable Preferred Stock And Warrants | NOTE 12. REDEEMABLE PREFERRED STOCK AND WARRANTS |
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On August 19, 2014, the Company entered into a securities purchase agreement (the Securities Purchase Agreement) with Nightingale Onshore Holdings L.P. and Nightingale Offshore Holdings L.P. (each a Purchaser and together, the Purchasers), investment funds affiliated with Rhne Capital L.L.C. Pursuant to the Securities Purchase Agreement, for aggregate cash consideration of $50 million, the Company issued to the Purchasers an aggregate of 50,000 shares of the Companys newly designated Series A Serial Preferred Stock, par value $0.01 per share (the Preferred Stock), with detachable warrants to purchase up to 2,452,267 shares of the Companys Common Stock (the Warrants). Concurrently with the execution of the Securities Purchase Agreement, the Company also entered into a Shareholders Agreement with the Purchasers (the Shareholders Agreement). The issuance and sale of the Preferred Stock and Warrants were exempt from the registration requirements of the Securities Act of 1933, as amended (the Securities Act), pursuant to Section 4(2) of the Securities Act and/or Regulation D promulgated under the Securities Act. |
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Series A Serial Preferred Stock |
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Dividends on the Preferred Stock are due on January 1, April 1, July 1 and October 1 of each year, commencing on October 1, 2014. The Preferred Stock will also participate in dividends declared or paid, whether in cash, securities or other property, on the shares of Common Stock for which the outstanding Warrants are exercisable. Dividends are payable at the per annum dividend rate of 5% of the liquidation preference, which is initially $1,000 per share (the Liquidation Preference). If and to the extent that the Company does not pay the entire dividend to which holders of the Preferred Stock are entitled for a particular period in cash on the applicable dividend payment date, preferential cash dividends will accrue on such unpaid amounts (and on any unpaid dividends in respect thereof) at 5% per annum, and will compound on each dividend payment date, until paid. No cash dividend may be declared or paid on Common Stock or other classes of stock over which the Preferred Stock has preference unless full cumulative dividends have been or contemporaneously are declared and paid in cash on the Preferred Stock. The Preferred Stock has an aggregate liquidation preference of $50 million, and ranks junior to all of the Companys liabilities and obligations to creditors with respect to assets available to satisfy claims against the Company and senior to all other classes of stock over which the Preferred Stock has preference, including the Common Stock. The Preferred Stock will not be convertible into Common Stock at any time. |
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Pursuant to the Shareholders Agreement, each quarter the Company will declare and pay in cash no less than fifty percent (50%) of each dividend to which holders of Preferred Stock are entitled under the articles of amendment designating the rights of the Preferred Stock (the Articles of Amendment), unless payment of such dividend in cash (i) is prohibited by or would result in a default or event of default under the Companys indenture, credit facilities and certain other debt documents or (ii) would result in a breach of the legal or fiduciary obligations of the Board, in which case the Company will declare and pay in cash the maximum amount permitted to be paid in cash. |
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The Preferred Stock is redeemable at the option of the holder at 100% of the Liquidation Preference plus an amount per share equal to accrued but unpaid dividends on the Preferred Stock up to the date of redemption, at any time after August 19, 2022. The Preferred Stock is also redeemable at the option of the Company at the following redemption prices and times: |
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Percentage of Liquidation Preference of each | | Timing of Redemption Right | | |
share of Preferred Stock to be redeemed * | | | | |
103 | % | On or after August 19, 2016 but prior to August 19, 2019 | | |
102 | % | On or after August 19, 2019 but prior to August 19, 2020 | | |
101 | % | On or after August 19, 2020 but prior to August 19, 2021 | | |
100 | % | On or after August 19, 2021 | | |
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*In each case, plus an amount per share equal to accrued but unpaid dividends on such share of Preferred Stock up to, but excluding, the earlier of the date of the redemption or the date of constructive redemption. |
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In the event of a Change of Control of the Company (as defined in the Company's Articles of Amendment) at a price per share of Common Stock below $24.00, the holders of the Preferred Stock will have the right to require the Company to repurchase each share of Preferred Stock held by such holder for cash at the following prices and times (provided that doing so does not cause a default or event of default under the Companys indenture, credit facilities and certain other debt documents and there are sufficient funds legally available therefor): |
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Percentage of Liquidation Preference of each share | | Change of Control Date | | |
of Preferred Stock to be repurchased * | | | | |
120 | % | Prior to August 19, 2015 | | |
110 | % | On or after August 19, 2015 but prior to August 19, 2016 | | |
105 | % | On or after August 19, 2016 but prior to August 19, 2017 | | |
101 | % | On or after August 19, 2017 | | |
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*In each case, plus an amount per share equal to accrued but unpaid dividends on such share of Preferred Stock up to, but excluding, the earlier of the date of the redemption or the date of constructive redemption. |
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So long as the Purchasers beneficially own a majority of the outstanding shares of Preferred Stock, the holders of a majority of such outstanding shares, voting separately as a class, will have the right (the Designation Rights) to elect the following number of directors to the board of directors of the Company at any meeting of shareholders of the Company (or by written consent) at which directors are to be elected, designated or appointed (the Board): (i) if the Percentage Interest (as defined in the Shareholders Agreement) as of the record date for such meeting (or action by written consent) is equal to or more than the percentage of Common Stock represented by the shares underlying the Warrants as of the date of issuance (approximately 7.6%) but less than 20%, one member of the Board; or (ii) if the Percentage Interest as of the record date for such meeting (or action by written consent) is equal to or greater than 20%, two members of the Board. As of October 24, 2014, the Purchasers Percentage Interest was approximately 20.2%. Effective on October 28, 2014, the Purchasers elected M. Steven Langman and Franz-Ferdinand Buerstedde to serve on the Board. |
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Except as required by law or otherwise provided in the Articles of Amendment, the holders of shares of Preferred Stock will be entitled to vote together as one class with holders of the Company's Common Stock on all matters submitted to a vote of the Companys shareholders. Each share of Preferred Stock is entitled to a number of votes (rounded down to the nearest whole number) equal to (i) the aggregate number of shares of Common Stock for which the outstanding Warrants are exercisable (regardless of whether or not such Warrants could legally be exercised at such time and regardless of whether the holder of the Preferred Stock is also the holder of Warrants) divided by (ii) the number of outstanding shares of Preferred Stock, determined as of the record date for the determination of holders of Common Stock entitled to vote on any such matter. |
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Warrants |
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The exercise price for the Warrants is $20.39 per share (the Warrant Price), and they mature on August 19, 2024. The Warrant Price may be paid, at the option of the holder, in cash or by surrendering to the Company shares of Preferred Stock having an aggregate liquidation preference plus accrued and unpaid dividends equal to the aggregate exercise price. Alternatively, subject to certain exceptions in the case of a Mandatory Exercise (as defined below), if the market price (as determined pursuant to the Warrant) (the Market Price) of the Common Stock is greater than the Warrant Price, the holder may elect to surrender the Warrant and receive shares of Common Stock in respect of the Warrant equal to the value, as determined pursuant to the Warrant, of the Warrant, subject to certain restrictions. |
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After August 19, 2019, the Company may require the exercise of the Warrants if the volume weighted average sale price for the Common Stock, as determined pursuant to the Warrant, exceeds 150% of the exercise price for ten (10) consecutive trading days (a Mandatory Exercise). Payment of the exercise price in the case of a Mandatory Exercise is required to be made first by surrender of shares of Preferred Stock held by the Warrant holder. |
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The exercise price of the Warrants and the number of shares issuable upon exercise of the Warrants are subject to adjustment, as provided in the Warrants, including if the Company, on or after August 19, 2017, issues or sells Common Stock for a price lower than the Market Price of the Common Stock and the exercise price of the Warrants. |
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Shareholders Agreement |
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Under the terms of the Shareholders Agreement, from and after the date the Purchasers are no longer entitled, in their capacity as holders of Preferred Stock, to elect directors to the Board pursuant to their Designation Rights, the Purchasers will have the right to jointly designate for election one member to the Companys Board of Directors for so long as the Purchasers Percentage Interest (as defined in the Shareholders Agreement) is equal to or more than the percentage of Common Stock represented by the shares underlying the Warrants as of the date of issuance (approximately 7.6%) but less than 20%, and the right to designate for election an additional member to the Companys Board if the Purchasers have an aggregate Percentage Interest equal to or exceeding 20% of the Companys outstanding Common Stock. |
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The Shareholders Agreement also imposes restrictions under certain circumstances on the Company's ability to, among other things, (i) amend the Companys articles of incorporation and bylaws, (ii) prior to August 19, 2017, issue or sell any Common Stock at a price per share less than the Warrant Price, and (iii) make certain restricted payments under the Indenture relating to the Companys Senior Notes. In addition, the Purchasers are entitled to preemptive rights under certain circumstances, as well as customary demand and piggyback registration rights relating to the shares of Common Stock underlying the Warrants. |
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Financial Statement Presentation |
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Upon issuance, the Preferred Stock has been classified as mezzanine equity on the consolidated balance sheet. Based on its terms, the Preferred Stock is considered contingently redeemable. The accounting guidance under Topic 480, Distinguishing Liabilities from Equity, requires preferred securities that are redeemable for cash or other assets to be classified outside of permanent equity if they are redeemable at a fixed or determinable price on a fixed or determinable date, at the option of the holder, or upon the occurrence of an event that is not solely within the control of the issuer. The Warrants have been classified as equity on the balance sheet. |
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Under Topic 480, if preferred shares are issued in conjunction with other securities, such as warrants, and the other securities meet the requirements for equity classification, the sales proceeds from the issuance should be allocated to each security based on their relative fair values. The fair value of the Preferred Stock was based on the present value of the dividends expected to be paid at the 5% annual rate over the next eight years until August 19, 2022, the first date that the preferred stock may be redeemed at the option of the holder at par, as well as the payment of the redemption amount of $50 million and any unpaid dividends due on August 19, 2022. In determining the fair value of the Warrants, given the possibility that the Warrants may be exercised at the Companys discretion under certain circumstances after August 19, 2019, as discussed above, the Company utilized a Monte Carlo simulation model using the assumptions below: |
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| Assumptions | | | |
Expected dividend yield | 0 | % | | |
Expected price volatility | 43.2 | % | | |
Risk-free interest rate | 2.4 | % | | |
Expected term in years | 10 | | | |
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Based on the guidance under Topic 480, the initial value of the Preferred Stock and Warrants recorded on the consolidated balance sheet equaled the sales proceeds received from the issuance of the Preferred Stock, net of any direct issuance costs. The Company incurred approximately $6 million of costs directly associated with this transaction. The net proceeds of approximately $44 million were allocated to the Preferred Stock and Warrants as follows: |
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| | Allocation of | | |
(Amounts in thousands) | | Net Proceeds | | |
Preferred Stock | $ | 29,849 | | |
Warrants | | 14,144 | | |
Total | $ | 43,993 | | |
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Under current accounting guidance, because the Preferred Stock is not redeemable currently, but because it is probable it will become redeemable, the Preferred Stock should be adjusted to its maximum redemption amount at each balance sheet date. In addition, the Company had the option to choose to either (i) accrete changes in the redemption value of the Preferred Stock over the period from the date of issuance to the earliest redemption date of the security, or (ii) recognize changes in the redemption value of the Preferred Stock immediately and adjust the carrying value of the Preferred Stock to equal the redemption value at the end of each reporting period (this method would view the end of the reporting period as if it were also the redemption date for the Preferred Stock). The Company selected the second option and recognized the accretion immediately and recorded the full accretion in the first quarter of fiscal 2015. On September 29, 2014, the Board declared a dividend of approximately $295,000 on the Preferred Stock, and 50% of the dividend declared was paid on October 1, 2014. In addition, in October 2014, the Board declared a dividend of approximately $639,000, and 50% of the dividend declared was paid in January 2015. Accrued dividends payable as of December 31, 2014 were approximately $786,000 and dividend arrearage as of December 31, 2014 was approximately $147,000. |
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The following table sets forth the accretion and dividends on the redeemable Preferred Stock for the three and six months ended December 31, 2014: |
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| | Three Months | | Six Months |
| | Ended | | Ended |
| | December 31, | | December 31, |
(Amounts in thousands) | | 2014 | | 2014 |
Preferred stock accretion to redemption value | $ | -- | $ | 20,151 |
Dividends | | 639 | | 934 |
Total | $ | 639 | $ | 21,085 |