CCUR:
All of the Shares held by CCUR were purchased using cash on the CCUR balance sheet. The aggregate amount of funds used for the purchase of Shares held by CCUR
was approximately $620,452.
The shares held by the Reporting Persons are held in margin accounts together with other securities. Such margin accounts may
from time to time have debit balances. Part of the purchase price of such Shares was obtained through margin borrowing.
Item 4. Purpose of
Transaction
The Reporting Persons purchased the Shares for investment purposes based on their belief that the Shares are substantially undervalued and
represent an attractive investment opportunity. Richard Schottenfeld, on behalf of the Reporting Persons, has engaged, and expects to continue to engage, in discussions with the Company’s founder and chairman, Leonard Riggio, and other members
of Company management with respect to a variety of matters, including changes in Company leadership at the executive and board level, implementation of operational improvements, and the desirability of selling the Company.
The Reporting Persons believe that high quality additions to the Company’s board and management team would immediately enhance value both through
improved operational performance and in the event of a sale. In that regard, Mr. Schottenfeld is engaged in discussions with Mr. Riggio regarding the recommendation of experienced and qualified individuals whom Mr. Schottenfeld believes would
significantly contribute to the development and execution of the Company’s strategic and operating plans.
The Reporting Persons strongly believe
that the Company represents an attractive acquisition target. At an enterprise value of roughly 2.5x management’s reiterated EBITDA guidance for the 2019 fiscal year, the Company’s shares represent a truly unusual bargain in the retail
sector, especially considering the Company’s low seasonal-based leverage needs, 12% dividend, and the stabilizing same-store-sales trajectory of the past few months. Moreover, the Reporting Persons believe there are clear opportunities for
immediate operational improvements, including: an increased emphasis on, and improved assortment of, toys and games for the upcoming holiday season to capitalize on the extraordinary opportunity to capture meaningful category share and significant
revenue growth due to the recent closing of Toys R Us; a reallocation of shelf space and square footage away from unproductive music and DVD sales and towards higher margin, higher sales-per-square-foot product categories; enhancement to the
experiential aspect of the stores to improve traffic and monetization of shoppers who are drawn to the unique and enjoyable shopping and browsing experience of the Company’s stores and cafés (a customer experience similar to only a handful
of other retail concepts, most notably Starbucks or Apple stores); extracting higher value from the Company’s nearly 600 cafés, which are significantly undervalued when compared to recent transactions in the coffee space and are extremely
attractive to coffee and other beverage brands seeking strategic expansion and national exposure.
The Reporting Persons are encouraged by recent
third-party disclosure that the Company engaged in sale transaction discussions with a potential strategic acquirer as recently as June 2018, and believe that there will be additional and broadening interest from potential acquirers. The Reporting
Persons encourage the Company to continue in its efforts to explore and seriously consider all available sale transaction opportunities.
In addition to
the above, the Reporting Persons and their representatives have engaged in, and expect to continue to engage in, discussions with members of management and/or the board of directors of the Company, other current or prospective shareholders, industry
analysts, potential strategic transaction partners, investment and financing professionals and other third parties regarding a variety of matters relating to the Company, which may include, among other things, the Company’s business,
management, operations and capital structure, as well as strategic alternatives potentially available to the Company. Except as described herein, the Reporting Persons have no present plan or proposal that would relate to or result in any of the
matters set forth in subparagraphs (a)-(j) of Item 4 of Schedule 13D.
The Reporting Persons intend to review their investment in the Company on a
continuing basis. Depending on various factors including, without limitation, the Company’s financial position, results of operations and strategic direction, the market for the Company’s securities, other developments concerning the
Issuer, other opportunities available to the Reporting Persons, and general economic and stock market conditions, and subject to applicable legal requirements, the Reporting Persons may in the future take such actions with respect to their
investment in the Company as they deem appropriate, including, without limitation, (i) acquiring additional Shares and/or other securities of the Company; (ii) disposing of any or all of their Shares or other securities of the Company;
and/or (iii) otherwise changing their intentions with respect to any and all matters referred to in subparagraphs (a)-(j) of Item 4 of Schedule 13D.
Item 5. Interest in Securities of the Issuer
If the
Reporting Persons were deemed to have formed a “group” with each of the other Reporting Persons for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended (the “
Act
”), and Rule 13d thereunder,
due to the activities and intentions described in Item 4, the Reporting Person may have been deemed to be the beneficial owner of the Shares held by the other Reporting Persons. Each Reporting Person expressly disclaims beneficial ownership of the
Shares referred to in this Schedule 13D held by the other Reporting Persons, except to the extent expressly set forth herein, and the inclusion of the other Reporting Persons’ Shares in this Schedule 13D shall not be deemed to be an admission
of beneficial ownership of such reported Shares for purposes of Section 13(d) of the Act or for any other purpose.
The Reporting Person has no
responsibility for the accuracy or completeness of any information given with respect to any other person or entity, including, without limitation, each of the other Reporting Persons.
For the purpose of calculating the percent of class, the Issuer’s issued and outstanding shares of Common Stock was 72,793,646 shares of Common Stock, as
of May 31, 2018, which number includes 140,840 shares of unvested restricted stock that have voting rights and are held by members of the Board of Directors and the Company’s employees, as reported in the Issuer’s Annual Report on
Form
10-K
for the fiscal year ended April 28, 2018 and filed with the SEC on June 21, 2018.
Koyote
Trading, Koyote Capital and Mr. Schottenfeld:
|
(a)
|
As of the date hereof, Koyote Trading directly beneficially owns 200,000 shares of Common Stock, representing
0.27% of the Issuer’s Common Stock. These Shares are directly held by Koyote Trading. Koyote Capital is the manager of Koyote Trading and Mr. Schottenfeld is the manager of Koyote Capital. As a result, Koyote Capital and
Mr. Schottenfeld may be deemed to indirectly beneficially own the Shares held by Koyote Trading.
|
|
(b)
|
As of the date hereof, Koyote Trading has the shared power to vote or direct the vote, and shared power to
dispose, or direct the disposition of 200,000 shares of Common Stock. Koyote Capital and Mr. Schottenfeld have shared voting and dispositive power with respect to such Shares.
|
|
(c)
|
See Exhibit A. As of the date hereof, Koyote Trading has outstanding the following short put options: 1,352
short put options, referencing 135,200 shares of Common Stock, which are exercisable at $5.00 per share and expire on January 18, 2019 and 393 short put options, referencing 39,300 shares of Common Stock, which are exercisable at $5.00 per
share and expire on October 19, 2018.
|
|
(d)
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Except as described herein, no other person has the right to receive or the power to direct the receipt of
dividends from, or the proceeds from the sale of, the Shares held by Koyote Trading.
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