|9 Months Ended
Mar. 31, 2014
Effectiveness of Registration Statement and Distribution of Shares
A-Mark filed with the Securities and Exchange Commission a registration statement on Form S-1 relating to the Distribution by SGI to its shareholders of all the shares of common stock of the Company. The registration statement was declared effective by the SEC on February 11, 2014.
The spinoff of the Company from SGI was effected on March 14, 2014 and an aggregate of 7,402,664 shares of A-Mark's common stock were distributed to SGI stockholders. On March 17, 2014, A-Mark's shares began trading on the NASDAQ Global Select Market under the symbol "AMRK".
Obligation to Repurchase Common Shares
On February 26, 2014, A-Mark entered into a Purchase Agreement with Afinsa, Auctentia and SGI pursuant to which SGI agreed to purchase all shares of SGI’s common stock held by Afinsa and Auctentia, which includes 44,164 shares held by Afinsa and 2,988,106 shares held by Auctentia, for an aggregate purchase price of $6.4 million, payable in cash at two closings and plus interest as described below. In addition, Afinsa and Auctentia agreed to sell to A-Mark any shares of common stock of A-Mark received by Afinsa and Auctentia in connection with the spinoff of A-Mark.
The first closing under the Purchase Agreement occurred on February 26, 2014. On that date, SGI purchased 50% of the shares of SGI common stock held by Afinsa and Auctentia for $2.10 per share in cash. The shares purchased by SGI at the first closing include the right to receive the shares of common stock of A-Mark distributed in respect thereof in the spinoff. Accordingly, no shares of A-Mark common stock were issued in respect of the shares of SGI common stock purchased from Afinsa and Auctentia at the first closing.
The second closing under the Purchase Agreement is required to occur on or prior to July 1, 2014. At the second closing, SGI will purchase the remaining 50% of shares of SGI common stock held by Afinsa and Auctentia for an aggregate purchase price of $1.0 million and A-Mark will purchase the shares of A-Mark common stock distributed with respect to such shares of SGI common stock in the spinoff for an aggregate purchase price of $2.2 million, in each case together with interest calculated from February 26, 2014 to the date of the second closing at the rate of 4% per annum. The aggregate number of the Company's shares that will be repurchased total 379,033, which will be repurchased at $5.80 per share.
The Company has reflected the share repurchase obligation as a liability in accordance with ASC Topic 480 Distinguishing Liabilities from Equity in our third quarter condensed consolidated balance sheet as a component of accounts payable. The accrued interest totaled $0.01 million for the three and nine months ended March 31, 2014 and was reflected on the condensed consolidated of statements income as interest expense.
Payment of Dividends to Former Parent
On July 1, 2013, the Board of Directors of the Company declared a dividend to SGI in the aggregate amount of $5.0 million. This dividend was paid on July 5, 2013. On February 12, 2014, the Board of Directors of the Company declared a dividend to SGI in the aggregate amount of $5.0 million. This dividend was paid on February 26, 2014.
2014 Stock Award and Incentive Plan
Prior to the Distribution, the Company’s Board of Directors ("Board") adopted and the Company's shareholders approved the 2014 Stock Award and Incentive Plan ("2014 Plan"). Under the 2014 Plan, the Company may grant options and other equity awards as a means of attracting and retaining officers, employees, non-employee directors and consultants, to provide incentives to such persons, and to align the interests of such persons with the interests of stockholders by providing compensation based on the value of the Company's stock. Awards under the 2014 Plan may be granted in the form of incentive or non-qualified stock options, SARs, restricted stock, restricted stock units, dividend equivalent rights and other stock-based awards (which may include outright grants of shares). The 2014 Plan is administered by the Compensation Committee of the Board of Directors, which may in its discretion select officers and other employees, directors (including non-employee directors) and consultants to the Company and its subsidiaries to receive grants of awards.
Under the 2014 Plan, the exercise price of options and base price of SARs may be set at the discretion of the Board, but generally may not be less than the fair market value of the shares on the date of grant, and the maximum term of stock options and SARs is ten years. The 2014 Plan limits the number of share-denominated awards that may be granted to any one employee to 250,000 shares in any year. Also, the 2014 Plan limits the maximum grant-date fair value at $300 thousand of stock-denominated awards granted to any one of the non-employee directors, except for a non-employee Chairman of the Board whose grant-date fair value maximum is $600 thousand. The 2014 Plan will terminate when no shares remain available for issuance and no awards remain outstanding.
At March 31, 2014, there were no shares available for issuance under the 2014 Plan. However, the Company intends to file a Form S-8 to authorize for future issuance 625,000 shares in connection with 2014 Plan.
Equity Awards Assumed in Connection with the Spinoff
Prior to the Distribution Date, the SGI Board of Directors and the Compensation Committee of the SGI Board of Directors, and the Board of Directors of A-Mark, had taken action to provide that the holders of share-based awards, outstanding as of March 14, 2014, denominated in and settleable by delivery of shares of SGI common stock, would have their SGI share-based awards canceled upon the effectiveness of the Distribution, and in place of the canceled awards would become entitled to receive share-based awards denominated in and settleable by delivery of shares of the Company's common stock. The exchange ratio was based on the average closing market price of SGI’s common stock in the final three trading days on which SGI common stock traded before trading ex-dividend with respect to the Distribution, and the average closing market price of A-Mark’s common stock on its first three trading days in the NASDAQ Global Select Market (the “Exchange Ratio”). This resulted in an Exchange Ratio of 0.2397, based on an average closing price for SGI shares of $3.32 and an average closing price for A-Mark shares of $13.85. (For reference, the closing SGI price per share on March 14, 2014 was $3.37 per share and the closing A-Mark price per share on March 17, 2014 was $13.30 and on March 19, 2014 was $14.00.)
Accordingly, to provide for the equitable treatment of holders of then outstanding SGI equity awards in connection with the spin-off, the Company modified (reduced) the number of shares underlying each affected SGI award in the form of stock options, stock appreciation rights (“SARs”) or restricted stock units (“RSUs”) by a factor of 0.2397 to one (with the number of shares rounded up to the next whole share for the entire award, with rounding up of previously vested tranches first and rounding down (where necessary) of later vested tranches). For stock options and SARs, the Company modified (increased) the holders’ award exercise price or base price by a factor 4.1717 to one (the inverse of the Exchange Ratio), with per share exercise prices or base prices then rounded up to the next whole cent. These actions were taken pursuant to the anti-dilution assumption and adjustments approved by SGI and A-Mark. As a result, the Company granted, on March 19, 2014 (the date as of which the exchange ratio became determinable based on the average closing market price of A-Mark common stock), 130,646 RSUs, 8,990 SARs and options to purchase 249,846 shares of common stock. These awards are deemed to be granted under the original plans and arrangements of SGI that have been assumed by the Company, not under the 2014 Plan. However, the Company has not assumed those SGI plans and arrangements insofar as they authorize future grants of share-based compensation (as distinguished from the grants of replacement awards described above).
The cancelation and reissuance of share-based awards are accounted for as modifications in accordance with ASC 718, Compensation-Stock Compensation. The Company compared the fair value of each award immediately before and after modification and determined that the modification did not create any incremental compensation costs. Accordingly, there were no changes to the compensation costs of these awards, as determined using the Black-Scholes fair value model for stock options and SARs, and the common stock value for RSUs, on the original grant dates of each award.
Of the 249,846 stock options, 130,646 RSUs and 8,990 SARs issued in connection with the spin-off, 217,123 stock options, 50,340 RSUs and 8,990 SARs were issued to employees of the Company and the remainder were issued to employees of SGI. After the spin-off, A-Mark will recognize remaining compensation costs related to awards held by employees of the Company, including SGI employees who transferred to the Company in conjunction with the spin-off, over the remaining service period for each award. The Company will recognize compensation expense of $0.5 million, $0.2 million and $0.0 million, related to stock-options, RSUs and SARs, respectively, over weighted average periods 7.9 years, 8.4 years and 0.0 years, respectively. The Company will not recognize compensation costs for awards held by employees of SGI, as they are not providing any services to the Company.
Employee Stock Options
The Former Parent had granted employee stock options to certain members of management, key employees, and directors, including to A-Mark personnel, that were denominated in and settleable by delivery of share of SGI common stock. Effective with the Distribution ,the SGI share-based awards were canceled and in place of the canceled awards the holders of the awards were entitled to receive share-based awards denominated in and settable by deliver of shares of the Company's stock. During the nine months ended March 31, 2014 the Company issued 249,846 employee stock options in connection with the spinoff at a weighted average exercise price of $13.75.
Aside from the stock options issued in connection with the spinoff, no stock options were granted during the nine months ended March 31, 2014.
During the three and nine months ended March 31, 2014 and 2013, the Company incurred compensation expense related to stock options granted to the employees that were settleable in shares of SGI common stock (prior to the date of Distribution) and settleable in shares of Company's common stock (subsequent to the date of Distribution and award modification) as set forth below (amounts in thousands).
As of March 31, 2014, there was total remaining compensation expense of $0.5 million related to employee stock options, which will be recorded over a weighted average period of approximately 7.9 years.
The following table summarizes the stock option activity for the nine months ended March 31, 2014:
Following is a summary of the status of stock options outstanding at March 31, 2014:
Restricted Stock Units
The Former Parent had issued RSUs to certain members of management, key employees, and directors, including to A-Mark personnel. During the nine months ended March 31, 2014 the Company issued 130,646 of RSUs in connection with the spinoff. The RSUs had a weighted average issuance price of $2.22, determined based upon the fair value of SGI’s common stock on the original date of grant. Such shares generally vest after 2.0 years from the date of grant. Aside from the RSUs issued in connection with the spin-off, no RSUs were granted during the nine months ended March 31, 2014.
During the three and nine months ended March 31, 2014 and 2013, the Company incurred compensation expense related to RSUs granted to the employees that were settleable in shares of SGI common stock (prior to the date of Distribution) and settleable in shares of Company's common stock (subsequent to the date of Distribution and award modification) as set forth below (amounts in thousands).
The remaining compensation expense that will be recorded under restricted stock grants totals $0.2 million, which will be recorded over a weighted average period of approximately 8.4 years
The following table summarizes the RSU activity for the nine months ended March 31, 2014:
No tax benefit was recognized in the condensed consolidated statements of operations related to share-based compensation for the nine months ended March 31, 2014 and 2013. No share-based compensation was capitalized for the nine months ended March 31, 2014 and 2013.
Stock Appreciation Rights
The Company, from time to time, may grant SARs to certain key employees and executive officers. The number of shares to be received under these awards ultimately depends on the appreciation in the Company’s common stock over a specified period of time, generally three years. At the end of the stated appreciation period, the number of shares of common stock issued will be equal in value to the appreciation in the shares of the Company’s common stock, as measured from the stock's closing price on the date of grant to the average price in the last month of the third year of vesting. As of March 31, 2014, the Company had issued 8,990 SARs with an average base price of $50.31, in connection with the spinoff. At March 31, 2014, there was no intrinsic value associated with these arrangements. The Company did not recognize any compensation expense related to these awards during the three and nine months ended March 31, 2014 and 2013. There is no remaining compensation expense that will be recorded for these awards.
Certain Anti-Takeover Provisions
The Company’s Certificate of Incorporation and by-laws contain certain anti-takeover provisions that could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of the Company without negotiating with its Board. Such provisions could limit the price that certain investors might be willing to pay in the future for the Company’s securities. Certain of such provisions provide for a Board with staggered terms, allow the Company to issue preferred stock with rights senior to those of the common stock, or impose various procedural and other requirements which could make it more difficult for stockholders to effect certain corporate actions.