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Shareholders' Equity
 12 Months Ended
Aug. 31, 2012
Shareholders' Equity [Abstract]  
Shareholders' Equity

9.  SHAREHOLDERS’ EQUITY 

 

Preferred Stock 

 

We have 14.0 million shares of preferred stock authorized for issuance.  However, at August 31, 2012, no shares of preferred stock were issued or outstanding. 

 

Common Stock Warrants 

 

Pursuant to the terms of the preferred stock recapitalization plan, in fiscal 2005 we completed a one-to-four forward split of the existing Series A preferred stock and then bifurcated each share of Series A preferred stock into a new share of Series A preferred stock that is no longer convertible into common stock, and a warrant to purchase shares of common stock.  Accordingly, we issued 6.2 million common stock warrants with an exercise price of $8.00 per share (subject to customary anti-dilution and exercise features), which will be exercisable over an eight-year term that expires in March 2013.  These common stock warrants were recorded in shareholders’ equity at fair value on the date of the recapitalization, as determined by a Black-Scholes valuation methodology, which totaled $7.6 million. 

 

During the fourth quarter of fiscal 2011, Knowledge Capital Investment Group (Knowledge Capital), the holder of a warrant to purchase 5,913,402 shares of common stock, exercised its warrant with respect to 1,913,402 shares on a net settlement basis.  As a result of this transaction, we issued 596,116 shares of our common stock to Knowledge Capital from shares held in treasury.  In connection with this warrant exercise, we entered into an agreement with Knowledge Capital regarding its remaining warrant to purchase shares of common stock and the shares of common stock currently held by them.  Knowledge Capital agreed to the following: 

 

1.

To exercise its warrant with respect to the remaining 4.0 million shares only on a net settlement basis. 

 

2.

Not to exercise its right to cause the Company to file a registration statement with respect to the resale of any of the shares owned by Knowledge Capital (including the 1,015,000 shares already owned by Knowledge Capital) prior to the earlier of (i) March 8, 2013 (the expiration of the warrant) and (ii) one year after the date on which the warrant has been exercised in full (the Stand-Off Period). 

 

3.

If Knowledge Capital intends to sell any of our common shares (including shares previously owned by Knowledge Capital) in the market during the Stand-Off Period on an unregistered basis, Knowledge Capital will notify us in writing of such intent, including the details surrounding such sale, at least five trading days before commencing such sales, and, if requested by us, will refrain from selling shares of our common stock for up to 120 days after the date Knowledge Capital intended to begin such sales in order to permit us to arrange for an underwritten or other organized sale of these shares.  This action includes filing with the Securities and Exchange Commission, if applicable and required, an effective registration statement covering the sale of the shares in the manner proposed by Knowledge Capital or as otherwise agreed to by Knowledge Capital and us. 

 

4.

To discuss with us any proposal by us to purchase such shares during the 120-day period.   

 

In exchange for these considerations, we agreed to waive our right to pay cash in lieu of shares upon exercises of the warrant.  Two members of our Board of Directors, including our Chief Executive Officer, have an equity interest in Knowledge Capital.  This transaction and agreement was approved by members of our Board of Directors who are not affiliated with Knowledge Capital and have no economic interest in the warrant. 

 

Subsequent to August 31, 2012, Knowledge Capital exercised its warrant with respect to 1,000,000 shares on a net settlement basis.  Accordingly, we issued 340,877 shares of our common stock to Knowledge Capital from treasury under the terms of the foregoing agreement. 

 

Treasury Stock 

 

During the third quarter of fiscal 2012, our Board of Directors approved a plan to purchase up to $10.0 million of the Company’s outstanding common stock.  We intend to use available cash in excess of $10.0 million to make the purchases and all previously existing common stock repurchase plans were canceled.  Common stock purchases under this approved plan are made at our discretion based on prevailing market prices and are subject to customary regulatory requirements and considerations.  We do not have a timetable for the purchase of these common shares, and the authorization by the Board of Directors does not have an expiration date.  We have purchased a total of 41,085 shares of our common stock for $0.4 million through August 31, 2012.