Quarterly report pursuant to Section 13 or 15(d)

Mandatory Redeemable Series B Preferred Stock

Mandatory Redeemable Series B Preferred Stock
6 Months Ended
Jun. 30, 2019
Series B Preferred Stock [Abstract]  



Commencing May 31, 2019 through June 5, 2019 ("Closing Date"), the Company entered into Subscription Agreements with institutional investors pursuant to which the investors purchased 1,250,000 units consisting of one share of Series B Preferred Stock (the "Preferred Stock"), with a stated value of $20.00 per share (the "Stated Value") and a common stock purchase warrant to purchase 7.41 shares of the common stock (the "Warrants") for an aggregate of purchase price of $25.0 million.


The Preferred Stock ranks senior to the Company's common stock with respect to dividend rights and rights upon liquidation, winding-up or dissolution. The Preferred Stock is entitled to annual dividends at a rate equal to 8.0% per annum on the Stated Value of the Preferred Stock. Accrued dividends will be payable quarterly in shares of common stock of the Company based on a fixed share price of $1.62. The Warrants have an exercise price of $1.62 per share, which was in excess of the closing price of $1.60 on May 30, 2019, and are immediately exercisable and will expire seven years from the date of issuance.


The Preferred Stock is not convertible and does not hold voting rights.


On the fourth anniversary of the Closing Date, the Company is required to redeem all the outstanding shares of the Preferred Stock at the Stated Value, plus accrued and unpaid dividends. At any time prior to such date, the Company subject to the repayment and retirement of the Credit Agreement, may redeem any outstanding shares of Preferred Stock at the Stated Value, plus accrued and unpaid dividends ("Optional Redemption"). Notwithstanding the foregoing, the Company may elect an Optional Redemption prior to the fourth anniversary of the Closing Date so long as it obtains from the lenders to the Credit Agreement their prior written consent to such Optional Redemption.


The aggregate number of shares of common stock issued in payment of dividends on the Preferred Stock when added to the number of shares of common stock issued upon exercise of any warrants shall not exceed 19.9% of either (a) the total number of shares of common stock outstanding on the date hereof or (b) the total voting power of the Company's securities outstanding on the date hereof that are entitled to vote on a matter being voted on by holders of the common stock, unless and until the Company obtains stockholder approval permitting such issuances.


As the Preferred Stock is mandatorily redeemable, it is presented as a liability on the condensed consolidated balance sheet. All dividends payable on the Preferred Stock are classified as interest expense.


The Preferred Stock and Warrants have been determined to be freestanding financial instruments and have been accounted for separately. The Warrants are considered equity instruments and are not required to be recorded as a liability and marked-to-market at each reporting period. On the date of issuance, the value of the Warrants was determined to be $6.7 million, which was determined using the Black-Scholes valuation model. The fair value of the warrants was recorded as an increase to Additional Paid-In Capital and a discount of the Preferred Stock. The discount will be amortized to interest expense through May 2023.