| Equity and Equity-based Compensation | Equity and Equity-based Compensation FSAM Ownership Structure Subsequent to the Reorganization and IPO as described in Note 1, FSAM has two classes of common stock, Class A common stock and Class B common stock, which are described as follows: Class A common stock Holders of shares of Class A common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Additionally, holders of shares of Class A common stock are entitled to receive dividends when and if declared by the Board of Directors, subject to any statutory or contractual restrictions on the payment of dividends and to any restrictions on the payment of dividends imposed by the terms of any outstanding preferred stock. Upon dissolution, liquidation or the sale of all or substantially all of the Company's assets, after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the holders of shares of Class A common stock would be entitled to receive the Company's remaining assets available for distribution on pro rata basis. Holders of shares of Class A common stock do not have preemptive, subscription, redemption or conversion rights. Class B common stock Holders of Class B common stock are entitled to five votes for each share held of record on all matters submitted to a vote of stockholders. Shares of Class B common stock have voting but no economic rights and were issued in equal proportion to the number of Holdings LP Interests issued in the Reorganization to the Principals. Holders of Class B common stock do not have any right to receive dividends (other than dividends consisting of shares of Class B common stock or rights, options, warrants or other securities convertible or exercisable into or exchangeable for shares of Class B common stock paid proportionally with respect to each outstanding share of Class B common stock) or to receive a distribution upon the dissolution, liquidation or sale of all or substantially all of the Company's assets with respect to their Class B common stock other than the par value of the Class B common stock held. FSAM's amended and restated certificate of incorporation does not provide for any restrictions on transfer of shares of Class B common stock, however, in the event that an outstanding share of Class B common stock ceases to be held by a holder of a corresponding Holdings LP Interest, such share shall automatically be retired and canceled. In addition, when a Holdings LP Interest is exchanged for a share of Class A common stock by a Principal, the corresponding share of Class B common stock will be retired and canceled. Preferred Stock FSAM's amended and restated certificate of incorporation authorizes its Board of Directors to establish one or more series of preferred stock (including convertible preferred stock). Unless required by law or by any stock exchange, the authorized shares of preferred stock will be available for issuance without further action by holders of Class A common stock. FSAM's Board of Directors is able to determine, with respect to any series of preferred stock, the terms and rights of the series of preferred stock. FSAM could issue a series of preferred stock that could, depending on the terms of the series, impede or discourage an acquisition attempt or other transaction that some, or a majority, of its stockholders may believe is in their best interests or in which they may receive a premium for their Class A common stock over the market price of the Class A common stock. Dividends The following table reflects the dividends per share that the Company has recorded on its common stock for the nine months ended September 30, 2017 and September 30, 2016: Date Declared Record Date Payment Date Amount Cash March 20, 2017 March 31, 2017 April 14, 2017 $ 0.125 $1.9 million Total for the nine months ended September 30, 2017 $ 0.125 $1.9 million March 14, 2016 March 31, 2016 April 15, 2016 $ 0.10 $0.6 million May 11, 2016 June 30, 2016 July 15, 2016 0.10 $0.6 million August 10, 2016 September 30, 2016 October 14, 2016 0.10 $0.7 million Total for the nine months ended September 30, 2016 $ 0.30 $1.8 million Share Repurchase Program On May 11, 2016, the Company's Board of Directors authorized a share repurchase program for the repurchase of up to $20.0 million of the Company's Class A common stock. Under the repurchase program, the Company is authorized to repurchase shares through open market purchases or block trades, as conditions permit and in accordance with Rule 10b-18 of the Exchange Act. The repurchase program terminated on May 11, 2017. During the nine months ended September 30, 2017, there were no repurchases of shares of Class A common stock pursuant to this program. Equity-based Compensation Prior to the Reorganization, the Company historically had fee sharing arrangements whereby certain employees or members were granted interests to a share of Part I Fees. Upon consummation of the Reorganization, such interests were exchanged for Holdings LP Interests. In addition, upon consummation of the IPO, the Company granted certain equity instruments to Holdings Limited Partners, employees and directors. As the Company determined the closing of the Oaktree transaction (discussed below) was probable to occur as of September 30, 2017, the amortization periods of certain equity awards were changed to coincide with the date of Closing. Conversion and Vesting of Member Interests in Predecessor and Fifth Street Holdings L.P. On November 4, 2014, in connection with the Reorganization, existing interests held by the members of the Predecessor were exchanged for Holdings LP Interests. As part of this exchange, one of the members' Holdings LP Interests became immediately vested and expensed in full and the other members' vesting was modified and their Holdings LP Interests vest over a period of eight years from the IPO. There was no change in the fair value of these converted interests as a result of the modification in vesting. The partnership agreement provides that if a Holdings Limited Partner, other than a Principal, (i) resigns from his or her employment with the Company without good reason or is terminated for cause, the unvested portion of such person’s Holdings LP Interests shall be subject to call or forfeited, as described below, (ii) is terminated without cause, resigns from his or her employment with good reason or becomes disabled, all of the unvested portion of such person’s Holdings LP Interests shall immediately vest, or (iii) becomes deceased, all of such person’s Holdings LP Interests will vest. Messrs. Tannenbaum, Berman and Ivelin M. Dimitrov may purchase any unvested Holdings LP Interests subject to forfeiture for $0.01 per Holdings LP Interest. This call right may be exercised by Messrs. Tannenbaum, Berman and Dimitrov on a pro rata basis based on the number of Holdings LP Interests held by them. The Holdings LP Interests of the Principals are not subject to vesting arrangements and not subject to call or forfeiture. The Principals were not permitted to exchange their Holdings LP Interests until November 4, 2016, which was the second anniversary of the closing of the IPO, after which time each Principal is permitted to exchange up to 20% of the remaining Holdings LP Interests that he owns and an additional 20% of such remaining Holdings LP Interests on or after each of the next four anniversaries of the Company's IPO. The foregoing restrictions on an exchange by the Principals will not apply in connection with a change of control of the Company. On January 4, 2017, pursuant to the terms of the above exchange agreement, a director of the Company and certain other Holdings Limited Partners exchanged an aggregate of 8,772,450 Holdings LP Interests for shares of the Company’s Class A common stock on a one -for-one basis and, in the case of the Principals, submitted to the Company 8,571,370 shares of the Company’s Class B common stock for cancellation. The following table summarizes the amortization of unrecognized compensation expense for the nine months ended September 30, 2017 and 2016 with respect to the Company's Holdings LP Interests which are equity classified awards, all of which is included in discontinued operations: Balance at December 31, 2016 $ 1,798,921 Amortization of Holdings LP Interests (1) (1,365,230 ) Forfeitures (413,894 ) Purchase of unvested Holdings LP Interests by Principals (2) 222,844 Balance at September 30, 2017 $ 242,641 Balance at December 31, 2015 $ 7,016,286 Amortization of Holdings LP Interests (1,946,632 ) Balance at September 30, 2016 $ 5,069,654 (1) Includes an acceleration of $1,162,021 in connection with the separation of a former Holdings limited partner. (2) Amount relates to the purchase by the Principals of former Holdings limited partners' unvested Holdings LP interests. Such amount was based on the share price of Class A common stock on the date of purchase. As of September 30, 2017 , unrecognized compensation cost in the amount of $242,641 relating to these equity-based awards is expected to be recognized over a period of approximately 0.1 years . 2017 Equity Grants to Senior Management On January 3, 2017, the Company granted 287,770 restricted stock units, or RSUs, to Patrick J. Dalton, Former Co-President of the Company. The RSUs granted to Mr. Dalton were to vest in installments of one-fourth on each of the first four anniversaries of the grant date. Also, on January 3, 2017, the Company granted Mr. Dalton two option awards to purchase an aggregate of 1,000,000 shares of the Company’s Class A common stock. The first was an option to purchase 750,000 shares of Class A common stock that was to vest in equal installments of one-third on each of the first three anniversaries of the grant date, subject to Mr. Dalton’s continued employment, and has a five -year term. The second was an option to purchase 250,000 shares of Class A common stock that was to vest in full on the fourth anniversary of the grant date, subject to Mr. Dalton’s continued employment, and has a six -year term. All of the options were granted with an exercise price equal to $6.95 , which was the closing price of the Company’s Class A common stock on the date of grant. On January 12, 2017, the Company granted an aggregate of 637,252 RSUs to the following individuals and in the following amounts: 432,519 RSUs to Mr. Leonard M. Tannenbaum, Chairman and Chief Executive Officer of the Company; 97,863 RSUs to Mr. Bernard D. Berman, Co-President and Chief Compliance Officer of the Company; 76,336 RSUs to Alexander C. Frank, Chief Operating Officer and Chief Financial Officer of the Company and 30,534 to two other employees. Each RSU represents the contingent right to receive one share of Class A common stock of the Company. The RSUs granted to these individuals vest in installments of one-third on each of the first three anniversaries of the grant date. No later than 60 days following each vesting date, one share of Class A common stock of the Company shall be issued for each RSU that becomes vested on such vesting date. The RSUs are subject to acceleration or forfeiture in certain limited circumstances. On April 4, 2017, Patrick J. Dalton resigned as Co-President of FSAM. Pursuant to a separation agreement and general release, Mr. Dalton is entitled to $1,250,000 in cash payment. In addition, 214,704 RSUs (and any unvested accumulated dividend equivalents thereupon) were forfeited. The remaining 73,066 RSUs (and any unvested accumulated dividend equivalents thereupon) held by Mr. Dalton vested in May 2017. In addition, 186,524 of Mr. Dalton’s six -year options and 559,570 of his five -year options were forfeited. The remaining 63,476 six -year options and 190,430 five -year options continue to be outstanding and will vest on the anniversary dates in accordance with the terms of the January 3, 2017 grant agreement. Fifth Street Asset Management Inc. 2014 Omnibus Incentive Plan In connection with the IPO, FSAM's Board of Directors adopted the 2014 Omnibus Incentive Plan pursuant to which the Company granted options to its non-employee directors, executive officers and other employees to acquire 5,658,970 shares of Class A common stock, 1,174,748 RSUs to be settled in shares of Class A common stock and 90,500 stock appreciation rights to be settled in cash. During the three and nine months ended September 30, 2017 and 2016, there were additional grants under the 2014 Omnibus Incentive Plan as discussed below. Equity-based compensation expense related to grants under the 2014 Omnibus Incentive Plan is as follows: Three Months Ended September 30, 2017 Three Months Ended September 30, 2016 Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016 RSUs to be settled in Class A common stock $ 2,086,416 $ 748,950 $ 3,314,380 $ 2,406,268 Options to acquire shares of Class A common stock 67,937 614,706 331,506 1,859,153 Stock appreciation rights to be settled in cash (6,625 ) 1,966 (4,054 ) 4,314 Total (1) $ 2,147,728 $ 1,365,622 $ 3,641,832 $ 4,269,735 (1) For the three months ended September 30, 2017 and 2016, $1,566,597 and $756,257 , respectively, were included in discontinued operations. For the nine months ended September 30, 2017 and 2016, $1,900,973 and $2,411,633 , respectively, were included in discontinued operations. RSUs Each RSU represents an unfunded, unsecured right of the holder to receive a Class A common share on the vesting dates. The RSUs do not vest for three years and subsequently vest at a rate of one-third per year on the fourth, fifth and sixth anniversary of the grant date. These awards will become saleable at a rate of one-quarter (¼) per year, beginning on the sixth, seventh, eighth and ninth anniversary of the grant date. Upon vesting, shares of Class A common stock will be delivered to the participant. Additionally, when the Company pays dividends on its outstanding shares of Class A common stock, the holder of the RSUs will be credited with dividend equivalents. For stock dividends, the dividend equivalents will be in the form of additional RSUs. For cash dividends, the dividend equivalents will be in the form of cash (without interest or earnings). Dividend equivalents are subject to the same terms and conditions as the original restricted stock unit award, and are not paid until the vesting and settlement of the underlying shares of Class A common stock to which such dividend equivalents relate. During the nine months ended September 30, 2017, the Company granted 925,022 RSUs to members of senior management as discussed above. During the nine months ended September 30, 2016, the Company granted 156,740 RSUs to employees under substantially similar terms to the IPO grant. For the nine months ended September 30, 2017 and 2016, the Company declared cash dividends of $0.125 and $0.30 per share, respectively, and accrued dividends (net of forfeitures) in the amount of $(133,347) and $299,490 , respectively, related to unvested RSUs which are forfeitable. The following table presents unvested RSUs' activity for the nine months ended September 30, 2017: Restricted Stock Units Weighted Average Grant Date Fair Value Per Unit Balance at December 31, 2016 805,037 $ 15.56 Granted 925,022 6.67 Vested (125,383 ) 11.14 Forfeited (452,105 ) 12.23 Balance at September 30, 2017 1,152,571 $ 10.22 Compensation expense associated with these RSUs is being recognized on a straight-line basis over the service period of the respective grant. The total compensation expense expected to be recognized in all future periods associated with the RSUs is $2,691,300 as of September 30, 2017 , which is expected to be recognized over the remaining weighted average period of approximately 3.1 years . Options Each option entitles the holders to purchase from the Company, upon exercise thereof, one share of Class A common stock at the stated exercise price. Since all options granted prior to fiscal 2016 either restrict saleability upon vesting or have strike prices in excess of the IPO price, the use of standard option pricing models such as Black-Scholes is precluded by ASC Topic 718, Compensation - Stock Compensation . As such, the Company has utilized a Monte Carlo pricing simulation, a statistical pricing technique or similar method to measure the fair value of option awards on the date of grant. During the nine months ended September 30, 2017, options to purchase 1,040,000 shares of Class A Common Stock, at an exercise price equal to the closing stock price on the date of grant were granted to senior management and members of the board of directors. Such options vest one year from the date of grant. The fair value of these option grants was measured on the date of grant using the Black-Scholes option-pricing model and the following assumptions: Risk-free interest rate 1.61% - 1.94% Expected dividend yield 7.85 % Expected volatility factor 56.49% - 59.24% Expected life in years 3.5 - 5.0 A summary of unvested options activity for the nine months ended September 30, 2017 is presented below: Options Weighted Average Exercise Price Weighted Average Remaining Life (in years) Aggregate Intrinsic Value Balance at December 31, 2016 1,558,013 $ 18.21 7.7 Granted 1,040,000 6.88 5.2 Vested (333,494 ) 16.67 4.0 Forfeited (1,758,458 ) 13.66 6.0 Balance at September 30, 2017 506,061 $ 11.74 6.6 Exercisable at September 30, 2017 3,253,669 $ 18.20 4.3 $ 20,700 Expected to vest after September 30, 2017 506,061 $ 11.74 6.6 $ — Aggregate intrinsic value represents the value of the Company's closing share price on the last trading day of the quarter in excess of the weighted average exercise price multiplied by the number of options exercisable or expected to vest. Compensation expense associated with these options is being recognized on a straight-line basis over the service period of the respective grant. As of September 30, 2017 , there was $211,731 of total unrecognized compensation expense that is expected to be recognized over the remaining weighted average period of approximately 3.1 years . Stock Appreciation Rights (“SARs”) Each SAR represents an unfunded, unsecured right of the holder to receive an amount in cash equal to the excess of the closing price of a share of Class A common stock over the exercise price. The SARs, terms and conditions are substantially similar to the provisions of the IPO option grants discussed above and had a grant date fair value of $1.78 per SAR and vest six years after grant. All of the currently outstanding SARs were issued in connection with the IPO. Upon vesting, they will be settled in cash. The fair value of the SARs are re-measured each reporting period until settlement and changes in fair value are charged to compensation expense as the SARs vest over the remaining service period. The amount of the adjustment has been derived based on a grant date fair value using the IPO price of $17.00 per share, multiplied by the number of unvested SARs, and expensed over the six year service period. The total compensation expense expected to be recognized in all future periods associated with the SARs, is approximately $25,612 . A summary of unvested SARs activity for the nine months ended September 30, 2017 and 2016 is presented below: SARs Weighted Average Grant Date Fair Value Per SAR Balance at December 31, 2016 44,000 $ 1.78 Granted — — Vested — — Forfeited (16,000 ) 1.78 Balance at September 30, 2017 28,000 $ 1.78 Balance at December 31, 2015 71,000 $ 1.78 Granted — — Vested — — Forfeited (24,500 ) 1.78 Balance at September 30, 2016 46,500 $ 1.78 |
