Shareholders' Equity
Private Placement Securities Purchase Agreements
On September 14, 2016, the Company entered into private placement securities purchase agreements ("Purchase Agreements") with certain accredited investors to which the Company: (a) sold, in the aggregate, 5,952,381 shares of the Company's common stock at a price of $1.68 per share; (b) issued five-year warrants ("Warrants") to purchase 2,976,190 shares of the Company's common stock at an exercise price of $2.90 per share, and (c) issued an option by which certain investors may purchase additional shares of Company's common stock and additional warrants to purchase shares of common stock ("Options").
The Company received gross proceeds of $10.0 million and incurred approximately $852,000 of issuance costs. The Warrants will expire on September 19, 2021 and were not exercisable until March 19, 2017. Except as noted below, the term of each option was six months and expired on March 19, 2017. The option exercise price was equal to the five-day volume weighted average price per share of the Company's common stock as of the day immediately prior to exercise. Upon exercise of the Options, two-thirds of the option securities would be issued in the form of common stock, and one-third would be issued in the form of warrants ("Option Warrants"). These Option Warrants have an exercise price at a 50% premium to the Company's closing stock price one-day prior to the option exercise and will expire five years after issuance. If all of the Warrants, Options and Option Warrants issued by the Company are all exercised, the total shares of common stock issued in connection with this offering cannot be more than approximately 19.99% of the Company's total issued and outstanding shares following such exercises.
The Company allocated the $10 million proceeds of the stock offering to each of the issued freestanding financial instruments based on their fair value at the time of issuance. The Warrants are indexed to the Company's publicly traded stock and were classified as equity. As a result, the portion of the proceeds allocated to the fair value of the Warrants was recorded as an increase to additional paid-in capital. The fair value of the Options was determined to be nominal. The par value of the shares issued was recorded within common stock, with the remainder of the proceeds, less offering costs, recorded as additional paid in capital in the Company's balance sheet. The Company plans to use the proceeds for general working capital purposes.
As part of the Purchase Agreements, the Company agreed to register the shares of common stock sold in the private placement and the shares of common stock issuable upon exercise of the Warrants, Options and certain of the Option Warrants. The Company has filed registration statements on Form S-3 to register the common stock sold in the private placement and issuable upon exercise of the Warrants, Options and the outstanding Option Warrants. The Company agreed to keep the shelf registration statement effective until the earlier of the second anniversary of the closing or such time as all registrable securities may be sold pursuant to Rule 144 under the Securities Act of 1933, without the need for current public information or other restriction.
During the fourth quarter of fiscal 2016, three investors exercised their Options. These exercises resulted in the Company's issuance, in the aggregate, of (a) 1,646,350 shares of the Company's common stock at a price ranging from $1.20 - $1.94 per share, resulting in aggregate proceeds of $2.5 million; and (b) five-year Option Warrants to purchase an additional 823,175 shares of the Company's common stock at an exercise price ranging from $1.76 - $3.00 per share and expire between November 10, 2021 and January 23, 2022. The Company incurred, in the aggregate, approximately $49,000 of issuance costs related to the Options exercised during the fourth quarter of fiscal 2016.
On March 16, 2017, the Company entered into the First Amendment and Restated Option (the "Amended Option") with TH Media Partners, LLC, one of the September 14, 2016 Securities Purchase Agreement investors. Under the terms of the Amended Option, the investor has the right to exercise its Option in two tranches. The first tranche reflects rights to purchase 150,000 shares of the Company’s common stock, which were issuable in the form of 100,000 common shares and a warrant to purchase an additional 50,000 common shares and was exercised on March 16, 2017. The exercise resulted in the issuance of (a) 100,000 shares of the Company's common stock at a price of $1.33 per share, resulting in aggregate proceeds of $133,000; and (b) a five-year Option Warrant to purchase an additional 50,000 shares of the Company's common stock at an exercise price of $1.92 per share and expiring on March 16, 2022. The second tranche reflects the right to purchase up to 1,073,945 shares of the Company’s common stock issuable in the form of 715,963 common shares and an Option Warrant to purchase an additional 357,982 common shares. The second tranche must be exercised on or before September 16, 2017. The exercise price of the Option and Option Warrants for the first and second tranches were not modified by the Amended Option. The Company incurred, in the aggregate, approximately $23,000 of issuance costs related to the Options exercised during the first quarter of fiscal 2017.
Stock Purchase from NBCU
On January 31, 2017, the Company purchased from NBCU 4,400,000 shares of the Company’s common stock for approximately $5 million or $1.12 per share pursuant to the Repurchase Letter Agreement. Following the Company's share purchase, the direct equity ownership of NBCU in the Company consisted of 2,741,849 shares of common stock, or 4.5% of the Company's outstanding common stock. Upon the settlement, the NBCU Shareholder Agreement was terminated pursuant to the Repurchase Letter Agreement. See Note 11 for additional information.
Stock-Based Compensation - Stock Options
Compensation is recognized for all stock-based compensation arrangements by the Company. Stock-based compensation expense for the first quarters of fiscal 2017 and fiscal 2016 related to stock option awards was $203,000 and $120,000, respectively. The Company has not recorded any income tax benefit from the exercise of stock options due to the uncertainty of realizing income tax benefits in the future.
As of April 29, 2017, the Company had one omnibus stock plan for which stock awards can be currently granted: the 2011 Omnibus Incentive Plan that provides for the issuance of up to 9,500,000 shares of the Company's stock. The 2004 Omnibus Stock Plan expired on June 22, 2014. No further awards may be made under the 2004 Omnibus Plan, but any award granted under the 2004 Omnibus Plan and outstanding on June 22, 2014 will remain outstanding in accordance with its terms. The 2001 Omnibus Stock Plan expired on June 21, 2011. No further awards may be made under the 2001 Omnibus Plan, but any award granted under the 2001 Omnibus Plan and outstanding on June 21, 2011 will remain outstanding in accordance with its terms. The 2011 plan is administered by the human resources and compensation committee of the board of directors and provides for awards for employees, directors and consultants. All employees and directors of the Company and its affiliates are eligible to receive awards under the plan. The types of awards that may be granted under this plan include restricted and unrestricted stock, restricted stock units, incentive and nonstatutory stock options, stock appreciation rights, performance units, and other stock-based awards. Incentive stock options may be granted to employees at such exercise prices as the human resources and compensation committee may determine but not less than 100% of the fair market value of the underlying stock as of the date of grant. No incentive stock option may be granted more than 10 years after the effective date of the respective plan's inception or be exercisable more than 10 years after the date of grant. Options granted to outside directors are nonstatutory stock options with an exercise price equal to 100% of the fair market value of the underlying stock as of the date of grant. With the exception of market-based options, options granted generally vest over three years in the case of employee stock options and vest immediately on the date of grant in the case of director options, and have contractual terms of 10 years from the date of grant.
The fair value of each time-based vesting option award is estimated on the date of grant using the Black-Scholes option pricing model that uses assumptions noted in the following table. Expected volatilities are based on the historical volatility of the Company's stock. Expected term is calculated using the simplified method taking into consideration the option's contractual life and vesting terms. The Company uses the simplified method in estimating its expected option term because it believes that historical exercise data cannot be accurately relied upon at this time to provide a reasonable basis for estimating an expected term due to the extreme volatility of its stock price and the resulting unpredictability of its stock option exercises. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected dividend yields were not used in the fair value computations as the Company has never declared or paid dividends on its common stock and currently intends to retain earnings for use in operations.
|
| | | | | | | |
| Fiscal 2017 | | Fiscal 2016 |
Expected volatility: | 81% | | 84% |
Expected term (in years): | 6 years | | 6 years |
Risk-free interest rate: | 2.2% | | 1.7% |
A summary of the status of the Company’s stock option activity as of April 29, 2017 and changes during the three months then ended is as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| 2011
Incentive
Stock
Option
Plan | | Weighted
Average
Exercise
Price | | 2004
Incentive
Stock
Option
Plan | | Weighted
Average
Exercise
Price | | 2001
Incentive
Stock
Option
Plan | | Weighted
Average
Exercise
Price |
Balance outstanding, January 28, 2017 | 2,543,000 |
| | $ | 2.19 |
| | 301,000 |
| | $ | 5.41 |
| | 77,000 |
| | $ | 10.73 |
|
Granted | 1,300,000 |
| | $ | 1.33 |
| | — |
| | $ | — |
| | — |
| | $ | — |
|
Exercised | (29,000 | ) | | $ | 0.99 |
| | — |
| | $ | — |
| | — |
| | $ | — |
|
Forfeited or canceled | (258,000 | ) | | $ | 3.38 |
| | (7,000 | ) | | $ | 4.87 |
| | (3,000 | ) | | $ | 10.48 |
|
Balance outstanding, April 29, 2017 | 3,556,000 |
| | $ | 1.80 |
| | 294,000 |
| | $ | 5.42 |
| | 74,000 |
| | $ | 10.74 |
|
Options exercisable at April 29, 2017 | 835,000 |
| | $ | 2.92 |
| | 287,000 |
| | $ | 5.44 |
| | 74,000 |
| | $ | 10.74 |
|
The following table summarizes information regarding stock options outstanding at April 29, 2017:
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Options Outstanding | | Options Vested or Expected to Vest |
Option Type | Number of
Shares | | Weighted
Average
Exercise
Price | | Weighted
Average
Remaining
Contractual
Life
(Years) | | Aggregate
Intrinsic
Value | | Number of
Shares | | Weighted
Average
Exercise
Price | | Weighted
Average
Remaining
Contractual
Life
(Years) | | Aggregate
Intrinsic
Value |
2011 Incentive: | 3,556,000 |
| | $ | 1.80 |
| | 8.9 | | $ | 280,000 |
| | 3,290,000 |
| | $ | 1.83 |
| | 8.9 | | $ | 258,000 |
|
2004 Incentive: | 294,000 |
| | $ | 5.42 |
| | 3.0 | | $ | — |
| | 294,000 |
| | $ | 5.42 |
| | 3.0 | | $ | — |
|
2001 Incentive: | 74,000 |
| | $ | 10.74 |
| | 0.1 | | $ | — |
| | 74,000 |
| | $ | 10.74 |
| | 0.1 | | $ | — |
|
The weighted average grant-date fair value of options granted in the first three-months of fiscal 2017 and fiscal 2016 was $0.93 and $0.85, respectively. The total intrinsic value of options exercised during the first three-months of fiscal 2017 and fiscal 2016 was $9,000 and $0, respectively. As of April 29, 2017, total unrecognized compensation cost related to stock options was $1,957,000 and is expected to be recognized over a weighted average period of approximately 2.5 years.
Stock-Based Compensation - Restricted Stock
Compensation expense recorded for the first quarter of fiscal 2017 and fiscal 2016 relating to restricted stock grants was $318,000 and $117,000, respectively. As of April 29, 2017, there was $2,504,000 of total unrecognized compensation cost related to non-vested restricted stock grants. That cost is expected to be recognized over a weighted average expected life of 1.9 years. The total fair value of restricted stock vested during the first three months of fiscal 2017 and fiscal 2016 was $98,000 and $23,000, respectively.
During the first quarters of fiscal 2017 and fiscal 2016, the Company granted a total of 317,219 and 188,991 shares, respectively, of time-based restricted stock awards to certain key employees as part of the Company's long-term incentive program. The restricted stock will vest in three equal annual installments beginning one year from the grant date. The aggregate market value of the restricted stock at the date of the award was $422,000 and $187,000 for the first quarters of fiscal 2017 and fiscal 2016, respectively. The awards are being amortized as compensation expense over the three-year vesting period. During the first quarter of fiscal 2017, the Company also granted a total of 327,738 shares of time-based restricted stock awards to employees as part of the Company's annual merit process. The restricted stock will vest one year after the date of the grant on April 24, 2018. The aggregate market value of the restricted stock at the date of the award was $446,000 and is being amortized as compensation expense over the one-year vesting period.
During the first quarter of fiscal 2017, the Company also granted a total of 7,096 shares of restricted stock to a newly appointed board member as part of the Company's annual director compensation program. This award vests on the day immediately preceding the next annual meeting of shareholders following the date of grant. The aggregate market value of the restricted stock at the date of the award was $9,000 and is being amortized as director compensation expense over the vesting period.
During the first quarter of fiscal 2017 and fiscal 2016, the Company granted a total of 561,981 and 179,156 shares, respectively, of market-based restricted stock performance units to certain executives as part of the Company's long-term incentive program. The number of restricted stock units earned is based on the Company's total shareholder return ("TSR") relative to a group of industry peers over a three-year performance measurement period. Grant date fair values were determined using a Monte Carlo valuation model based on assumptions as follows:
|
| | | | | | | | |
| Fiscal 2017 | | Fiscal 2016 |
Total grant date fair value | $860,000 | | $224,000 |
Total grant date fair value per share | $1.53 | | $0.98 | - | $1.72 |
Expected volatility | 75% | | 71 | % | - | 73% |
Weighted average expected life (in years) | 3 years | | 3 years |
Risk-free interest rate | 1.5% | | 0.9 | % | - | 1.0% |
The percent of the target market-based performance vested restricted stock unit award that will be earned based on the Company's TSR relative to the peer group is as follows:
|
| | |
Percentile Rank | | Percentage of
Units Vested |
< 33% | | 0% |
33% | | 50% |
50% | | 100% |
100% | | 150% |
A summary of the status of the Company’s non-vested restricted stock activity as of April 29, 2017 and changes during the three-month period then ended is as follows:
|
| | | | |
| Shares | | Weighted Average Grant Date Fair Value |
Non-vested outstanding, January 28, 2017 | 1,620,000 |
| | $2.00 |
Granted | 1,214,000 |
| | $1.43 |
Vested | (72,000 | ) | | $2.43 |
Forfeited | (43,000 | ) | | $1.48 |
Non-vested outstanding, April 29, 2017 | 2,719,000 |
| | $1.74 |
Shareholder Cooperation and Standstill Agreement
On March 24, 2017, the Company entered into a Cooperation Agreement with the Clinton Group, Inc. and GlassBridge Enterprises, Inc. (collectively "the Investor Group"). Pursuant to the Cooperation Agreement, the Company has agreed (i) to have the Company's Board of Directors (the "Board") appoint, within 30 calendar days, one new independent director, from a list of candidates, to serve on the Board until the 2017 Annual Meeting of Shareholders (the "2017 Annual Meeting"), (ii) to nominate the new independent director for election to the Board at the 2017 Annual Meeting for a term expiring at the 2018 Annual Meeting of Shareholders, (iii) to recommend in the Company's 2017 definitive proxy statement that the shareholders of the Company vote to elect the new independent director to the Board at the 2017 Annual Meeting, and (iv) to solicit, obtain proxies in favor of and otherwise support the election of the new independent director to the board at the 2017 Annual Meeting in a manner no less favorable than the manner in which the Company supports other nominees for election at the 2017 Annual Meeting. The Company has complied with each of these requirements. Under the terms of the Cooperation Agreement, the Investor Group has agreed to certain standstill provisions with respect to the Investor Group's actions with regard to the Company and its common stock. Such standstill provisions would be in effect for a period commencing on March 24, 2017 and ending on the date that is the earlier of (x) ten (10) business days prior to the expiration of the advance notice period for the submission by shareholders of director nominations for consideration at the 2018 Annual Meeting, (y) one hundred (100) calendar days prior to the first anniversary of the 2017 Annual Meeting, or (z) upon ten (10) calendar days' prior written notice delivered by any of the Investor Group to the Company following a material breach of the Cooperation Agreement by the Company if such breach has not been cured within a notice period, provided that any member of the Investor Group is not then in material breach of the Cooperation Agreement.