Stockholders' equity

6 Months Ended

Jun. 30, 2016

Stockholders' equity

Stockholders' equity

Note 6. Stockholders’ equity

Common stock repurchases

On June 8, 2016, the Company completed a privately negotiated stock repurchase of 2,800,000 shares of Class A common stock at a price of $10.50 per share for $29.4mm. On March 16, 2016, the Company completed a repurchase of 100,000 shares of Class A common stock at a price of $13.35 per share for $1.3mm.  The repurchased shares were placed into treasury to be used for general corporate purposes.  For more information, see Part II Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds”, included elsewhere in this Quarterly Report.

Event-based Class A common stock awards

Pursuant to the Equity Restructuring and Warrant Purchase Agreement, dated as of January 22, 2013, by and among Azteca Acquisition Holdings, LLC and the Company and the other parties identified therein, certain initial stockholders of Azteca Acquisition Corporation (which merged with the Company in connection with its initial public offering), agreed to subject 378,788 shares of Class A common stock to certain forfeiture provisions if the market price of shares of Hemisphere Class A common stock did not equal or exceed $15.00 per share for any 20 trading days within at least one 30-trading day period within 36 months of April 4, 2013.  Effective the close of trading on April 4, 2016, such holders forfeited 378,788 shares of Class A common stock back to the Company as a result.

Equity incentive plans

Effective May 16, 2016, the stockholders of all classes of capital stock of the Company approved at the annuals stockholder meeting the Hemisphere Media Group, Inc. Amended and Restated 2013 Equity Incentive Plan (the “2013 Equity Incentive Plan”) to increase the number of shares of Class A common stock that may be delivered under the 2013 Equity Incentive Plan by 3,225,920 shares, provide limits on non-employee director awards and additional provisions as set forth in plan (a copy of which is provided in the Company’s 2016 annual proxy statement).   An aggregate of 7.2 million shares of our Class A common stock were authorized for issuance under the terms of the Hemisphere Media Group, Inc. 2013 Equity Incentive Plan. At June 30, 2016, 4.4 million shares remained available for issuance of stock options or other stock-based awards under our 2013 Equity Incentive Plan (including shares of restricted Class A common stock surrendered to the Company in payment of taxes required to be withheld in respect of vested shares of restricted Class A common stock, which are available for re-issuance). The expiration date of the 2013 Equity Incentive Plan, on and after which date no awards may be granted, is April 4, 2023. The Company’s board of directors, or a committee thereof, administers the 2013 Equity Incentive Plan and has the sole and plenary authority to, among other things: (i) designate participants; (ii) determine the type, size, and terms and conditions of awards to be granted; and (iii) determine the method by which an award may be settled, exercised, canceled, forfeited or suspended.

The Company’s time-based restricted stock awards and option awards generally vest in three equal annual installments beginning on the first anniversary of the grant date, subject to the grantee’s continued employment or service with the Company. The Company’s event-based restricted stock awards and option awards generally vest upon the Company’s Class A common stock attaining a $15.00 closing price per share, as quoted on the NASDAQ Global Market, on at least 10 trading days, subject to the grantee’s continued employment or service with the Company.

Stock-based compensation

Stock-based compensation expense related to stock options and restricted stock was $0.6 million and $1.4 million for the three months ended June 30, 2016 and 2015, respectively, and $2.0 million and $2.7 million for the six months ended June 30, 2016 and 2015, respectively.   At June 30, 2016, there was $1.5 million of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of 2.1 years. At June 30, 2016, there was $1.1 million of total unrecognized compensation cost related to unvested restricted stock, which is expected to be recognized over a weighted-average period of 1.1 years.

Stock options

The fair value of stock options granted is estimated at the date of grant using the Black-Scholes option pricing model for time-based options and the Monte Carlo simulation model for event-based options. The expected term of options granted is derived using the simplified method under ASC 718-10-S99-1/SEC Topic 14.D for “plain vanilla” options and the Monte Carlo simulation for event-based options. Expected volatility is based on the historical volatility of the Company’s competitors given its lack of trading history. The risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. The Company has estimated forfeitures of 1.5%, as the awards are to management for which the Company expects lower turnover, and has assumed no dividend yield, as dividends have never been paid to stock or option holders and will not be paid for the foreseeable future.

Black-Scholes Option Valuation Assumptions	Six Months Ended June 30, 2016		2015
Risk-free interest rate	1.60	%	1.76%-2.12	%
Dividend yield	—		—
Volatility	26.37	%	25.8%-29.5	%
Weighted-average expected term (years)	6.0		6.3

The following table summarizes stock option activity for the six months ended June 30, 2016 (shares and intrinsic value in thousands):

	Number of shares		Weighted-average exercise price		Weighted-average remaining contractual term	Aggregate intrinsic value
Outstanding at December 31, 2015	2,043		$	11.49	7.6	$	6,740
Granted	30		13.64		—	—
Exercised	(13	)	10.60		—	—
Forfeited	—		—		—	—
Expired	—		—		—	—
Outstanding at June 30, 2016	2,060		$	11.53	7.2	$	2,081
Vested at June 30, 2016	1,433		$	11.47	6.9	$	1,569
Exercisable at June 30, 2016	1,433		$	11.47	6.9	$	1,569

The weighted average grant date fair value of options granted for the six months ended June 30, 2016 was $3.96.  At June 30, 2016, 0.3 million options granted are unvested, event-based options.

Restricted stock

Certain employees and directors have been awarded restricted stock under the 2013 Equity Incentive Plan.  The time-based restricted stock grants vest primarily over a period of three years.  The fair value and expected term of event-based restricted stock grants is estimated at the grant date using the Monte Carlo simulation model.

The following table summarizes restricted share activity for the six months ended June 30, 2016 (shares in thousands):

	Number of shares		Weighted-average grant date fair value
Outstanding at December 31, 2015	494		$	9.79
Granted	79		11.41
Vested	(300	)	10.71
Forfeited	—		—
Outstanding at June 30, 2016	273		$	9.25

At June 30, 2016, 0.2 million shares of restricted stock issued were unvested, event-based shares.

Warrants

At June 30, 2016, 12.3 million warrants, exercisable into 6.1 million shares of our Class A common stock, were issued and outstanding. Each warrant entitles the holder to purchase one-half of one share of our Class A common stock at a price of $6.00 per half share. Warrants may be exercised only through the date of expiration and are only exercisable for a whole number of shares of common stock (i.e. only an even number of warrants may be exercised at any given time by a registered holder). As a result, a holder must exercise a least two warrants at an effective exercise price of $12.00 per share. At the option of the Company, 7.6 million warrants may be called for redemption, provided that the last sale price of our Class A common stock reported has been at least $18.00 per share on each of twenty trading days within the thirty-day period ending on the third business day prior to the date on which notice of redemption is given. The warrants expire on April 4, 2018. During the six months ended June 30, 2016, we repurchased 1.0 million warrants for $1.0 million, and we issued 35,000 shares of Class A Common Stock upon the exercise of 70,000 warrants for total exercise proceeds of $0.4 million.