Redeemable Preferred Stock And Warrants | NOTE 12. REDEEMABLE PREFERRED STOCK AND WARRANTS 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 Rhône Capital L.L.C. Pursuant to the Securities Purchase Agreement, for aggregate cash consideration of $ 50 50,000 0.01 2,452,267 Series A Serial Preferred Stock 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 1,000 50 Pursuant to the Shareholders Agreement, each quarter the Company will declare and pay in cash no less than fifty percent ( 50 The Preferred Stock is redeemable at the option of the holder at 100 Percentage of Liquidation Preference of each share of Preferred Stock to be redeemed(*) Timing of Redemption Right 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 (*) 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. 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 Percentage of Liquidation Preference of each share of Preferred Stock to be repurchased(*) Change of Control Date 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 (*) 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. So long as the Purchasers (or their affiliates) 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 the Company at any meeting of shareholders of the Company (or by written consent) at which directors are to be elected, designated or appointed: (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 20 one 20 two 20.2 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 Company's 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. Warrants The exercise price for the Warrants is $ 20.39 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 ten 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. Shareholders Agreement 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 Company's 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 Company's Board if the Purchasers have an aggregate Percentage Interest equal to or exceeding 20% of the Company's outstanding Common Stock. The Shareholders Agreement also imposes restrictions under certain circumstances on the Company's ability to, among other things, (i) amend the Company's 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 Company's 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. Financial Statement Presentation 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. 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 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 value of the Warrants, given the possibility that the Warrants may be exercised at the Company's discretion under certain circumstances after August 19, 2019, as discussed above, the Company utilized a Monte Carlo simulation model using the assumptions below: Assumptions Expected dividend yield 0.00 % Expected price volatility 43.20 % Risk-free interest rate 2.40 % Expected term in years 10 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 Allocation of (Amounts in thousands) Net Proceeds Preferred Stock $ 29,849 Warrants 14,144 Total $ 43,993 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. Cumulatively through March 31, 2016, the Board has declared dividends of $ 4,118,330 1,747,264 2,371,066 1,747,264 50 334,535 2,059,165 The following table sets forth the accretion and dividends on the redeemable Preferred Stock for the three and nine months ended March 31, 2016 and 2015: (Amounts in thousands) Three Months Ended Nine Months Ended March 31, March 31, March 31, March 31, 2016 2015 2016 2015 Preferred stock accretion to redemption value $ - $ - $ - $ 20,151 Dividends 624 615 1,937 1,549 $ 624 $ 615 $ 1,937 $ 21,700 |