Medley Management (MDLM) Risk Analysis
Risk Overview Q4, 2020
Source: the company's latest filing for the period ended Dec 31, 2020, filed Mar 31, 2021
Risk Change Over Time
No filing history is available.
- Share Price & Shareholder Rights - Risk 1The Medley LLC Plan of Reorganization contemplates the issuance of a substantial quantity of MDLY Class A common stock, which will result in substantial dilution to MDLY's Class A existing stockholders.
The Medley LLC Plan of Reorganization, which is subject to the approval of the Bankruptcy Court and various conditions precedent, contemplates the issuance of a substantial number of shares of MDLY Class A Common Stock in connection with the proposed treatment of Medley LLC Notes and Strategic Capital Claims. In connection with the Medley LLC Plan of Reorganization, it is anticipated that certain equity incentive awards will also be issued to Medley personnel under the 2014 Plan, as amended. It is expected that the terms related to such awards will be set forth in a supplement to the Medley LLC Plan of Reorganization, with issuance of the awards subject to confirmation of the Medley LLC Plan of Reorganization. See the discussion appearing in in "Item 1. – Business" of this Form 10-K under the caption "Proposed Plan of Reorganization of Medley LLC" for a description of the proposed Medley LLC Plan of Reorganization, the consummation of which is subject to the approval of the Bankruptcy Court and other conditions precedent. The issuances of securities contemplated by the Medley LLC Plan of Reorganization, including the proposed issuances of Class A common stock in connection with the treatment of noteholder claims and Strategic Capital claims, as well as any equity incentive awards issued to Medley personnel, is expected to result in substantial dilution to existing MDLY stockholders owning shares of Class A common stock. As a result, the value attributable to shares of MDLY's existing Class A common stock is expected to be materially affected by the reorganization of our capital structure through the Medley LLC Chapter 11 Case and the Medley LLC Plan of Reorganization. Any trading in shares of MDLY's Class A common stock or the Notes during the pendency of the Medley LLC Chapter 11 Case is highly speculative and poses substantial risks to purchasers of MDLY's Class A Common Stock or Medley LLC's Notes.
- Share Price & Shareholder Rights - Risk 2Trading in our securities during the pendency of the Medley LLC Chapter 11 Case is highly speculative and poses substantial risks. The market price for such securities has been, and may continue to be, volatile. While the Medley LLC Plan of Reorganization contemplates that the Notes will be extinguished in exchange for MDLY Class A common stock, we can provide no assurances that Medley LLC will be able to maintain its listing on the NYSE prior to such exchange.
Trading in our securities has been, and during the pendency of the Medley LLC Chapter 11 Case continues to be, highly speculative and poses substantial risks. The market price for our securities has been, and may continue to be, volatile. Under the Medley LLC Plan of Reorganization, it is contemplated that the Notes will be extinguished in exchange for shares of MDLY Class A common stock. See the discussion appearing in in "Item 1. – Business" of this Form 10-K under the caption "Proposed Plan of Reorganization of Medley LLC" for a description of the proposed Medley LLC Plan of Reorganization, the consummation of which is subject to the approval of the Bankruptcy Court and other conditions precedent. While the Medley LLC Plan of Reorganization, if confirmed by the Bankruptcy Court and implemented as contemplated will result in dilution to the existing holders of MDLY's Class A common stock, the Medley LLC Plan of Reorganization avoids a potentially value destructive change in control and enables the survival of the overall enterprise as a going concern, preserving and maximizing return and value for all stakeholders. However, if the Medley LLC Plan of Reorganization is not approved, MDLY's Class A common stock and the Notes could potentially have no value. The Medley LLC Plan of Reorganization contemplates that the Notes will be extinguished in exchange for MDLY Class A common stock, in accordance with the terms of the Medley LLC Plan of Reorganization, which is subject to the approval of the Bankruptcy Court and other conditions precedent. Therefore, we would expect that if the Medley LLC Plan of Reorganization is confirmed by the Bankruptcy Court and becomes effective, the Notes would be cancelled in exchange for the recovery provided under the Medley LLC Plan of Reorganization, and the NYSE listing of the notes would cease at that time. However, we cannot provide any assurances that the NYSE would not delist the 2024 Notes and the 2026 Notes earlier. The NYSE has substantial discretion in discontinuing the listing of securities of issuers that have filed for reorganization relief under the bankruptcy laws, so we can provide no assurances that the listing of the Notes will be maintained during the period preceding any confirmation and effectiveness of the Medley LLC Plan of Reorganization. Further, if Medley LLC does not have positive cash flow or is not in sound financial health, its securities could be delisted pursuant to Section 802.01D of the NYSE Listed Company Manual (the "Manual") if the trading price of its securities on the NYSE is abnormally low, which has generally been interpreted to mean at levels below $0.16 per share, and its securities could also be delisted pursuant to Section 802.01 of the Manual if Medley LLC's average market capitalization over a consecutive 30 day-trading period is less than $15 million. In these events, Medley LLC would not have an opportunity to cure the market capitalization deficiency, and its securities would be delisted immediately and suspended from trading on the NYSE. The NYSE has substantial discretion in discontinuing the listing of securities of issuers that have filed for reorganization relief under the bankruptcy laws, so we can provide no assurances that the listing of the Notes will be maintained during the period preceding any confirmation and effectiveness of the Medley LLC Plan of Reorganization. If a suspension or delisting were to occur, there would be significantly less liquidity in the suspended or delisted securities. In addition, its ability to raise additional necessary capital through equity or debt financing, and attract and retain personnel by means of equity compensation, would be greatly impaired. Furthermore, with respect to any suspended or delisted securities, Medley LLC would expect decreases in institutional and other investor demand, analyst coverage, market making activity and information available concerning trading prices and volume, and fewer broker-dealers would be willing to execute trades with respect to such securities. A suspension or delisting would likely decrease the attractiveness of Medley LLC's securities to investors and cause the trading volume of its securities to decline, which could result in a further decline in the market price of its securities.
- Share Price & Shareholder Rights - Risk 3We can provide no assurances that MDLY will be able to maintain its listing on the NYSE.
MDLY's Class A Common Stock is currently listed on the NYSE. In order for our Class A Common Stock to continue to be listed on the NYSE, we are required to comply with various listing standards set forth in the Manual, including Section 802.01C, which requires the maintenance of a minimum average closing price of at least $1.00 per share during a consecutive 30 trading-day period (the "Market Capitalization Requirement"). In addition to the Market Capitalization Requirement, we are considered to be below compliance if our average market capitalization over a consecutive 30 day-trading period is less than $50 million and, at the same time, our stockholders' equity is less than $50 million pursuant to Section 802.01B of the Manual (the "Stockholders' Equity Requirement" and, together with the Market Capitalization Requirement, the "Listing Requirements"). We can provide no assurances that the listing of MDLY's Class A common stock on the NYSE will be maintained in the future. As previously disclosed, on April 17, 2020, MDLY received written notice (the "Notice") from the NYSE that MDLY did not at the time of the Notice (nor does MDLY at the time of filing of this Form 10-K) satisfy the Listing Requirements set forth in the Manual As noted in the Notice, as of April 16, 2020, MDLY's 30 trading-day average global market capitalization was approximately $26.5 million and its stockholders' equity was approximately ($118.1) million as of December 31, 2019. On June 1, 2020, MDLY submitted a business plan to the NYSE reflecting MDLY's intent to seek to regain compliance with the Listing Standards. On July 27, 2020, the NYSE accepted the plan and extended the cure period from December 26, 2020 to December 26, 2021, with MDLY subject to ongoing quarterly monitoring for compliance with said plan. However, MDLY can provide no assurances that it will be able to satisfy any of the steps outlined above and maintain the listing of the MDLY Class A common stock on the NYSE, or that MDLY's continuing noncompliance with the Listing Standards or the Medley LLC Chapter 11 Case will not materially adversely affect or prevent the continued listing of MDLY's Class A common stock in the future. Any suspension of trading or delisting of MDLY's Class A common stock from the NYSE would have a material adverse effect on holders of shares of MDLY's Class A common stock (including on holders who would receive such shares as contemplated by the Medley LLC Plan of Reorganization), and on the liquidity of such shares and the ability to trade and sell such shares, and could materially adversely affect the market price of the MDLY Class A common stock. The commencement of suspension or delisting procedures by an exchange remains, at all times, at the discretion of such exchange and would be publicly announced by the exchange. If a suspension or delisting were to occur, there would be significantly less liquidity in the suspended or delisted securities. In addition, MDLY's ability to raise additional necessary capital through equity or debt financing, and attract and retain personnel by means of equity compensation, would be greatly impaired. Furthermore, with respect to any suspended or delisted securities, MDLY would expect decreases in institutional and other investor demand, analyst coverage, market making activity and information available concerning trading prices and volume, and fewer broker-dealers would be willing to execute trades with respect to such securities. A suspension or delisting would likely decrease the attractiveness of shares of MDLY's Class A Common Stock to investors and cause the trading volume of the Class A Common Stock to decline, which could result in a further decline in the market price of such Class A Common Stock.
- Share Price & Shareholder Rights - Risk 4We may not be able to obtain the Bankruptcy Court's confirmation of the Medley LLC Plan of Reorganization or may have to materially modify the terms of the Medley LLC Plan of Reorganization.
Even if the Medley LLC Plan of Reorganization is approved by each class of holders of claims and interests entitled to vote (a "Voting Class"), the Bankruptcy Court, which, as a court of equity, may exercise substantial discretion and may choose not to confirm the Medley LLC Plan of Reorganization. Section 1129 of the Bankruptcy Code requirements include, among other things, a showing that confirmation of the Medley LLC Plan of Reorganization will not be followed by liquidation or the need for further financial reorganization of Medley LLC (the feasibility requirement), and that the value of distributions to dissenting holders of claims and interests will not be less than the value such holders would receive if Medley LLC liquidated under Chapter 7 (as defined below). Although we believe that the Medley LLC Plan of Reorganization will satisfy such tests, there can be no assurance that the Bankruptcy Court or other parties in interest will reach the same conclusion. Confirmation of the Medley LLC Plan of Reorganization will also be subject to certain conditions precedent. These conditions may not be met and there can be no assurance that the consenting stakeholders will agree to modify or waive such conditions. Further, changed circumstances may necessitate material changes to the Medley LLC Plan of Reorganization. Any such modifications could result in material less favorable treatment than the treatment currently anticipated to be included in the Medley LLC Plan of Reorganization. Such less favorable treatment could include a distribution of property to the class affected by the modification of a materially lesser value than currently anticipated to be included in the Medley LLC Plan of Reorganization or no distribution of property whatsoever under the Medley LLC Plan of Reorganization. Changes to the Medley LLC Plan of Reorganization may also delay the confirmation of the Medley LLC Plan of Reorganization and Medley LLC's emergence from bankruptcy, which could result in, among other things, additional incurred costs and expenses to Medley LLC's estate as debtor in bankruptcy.
- Accounting & Financial Operations - Risk 5The audited consolidated financial statements included in this Form 10-K for the fiscal year ended December 31, 2020 contain disclosures that express substantial doubt about our ability to continue as a going concern.
The audited consolidated financial statements included in this Form 10-K for the fiscal year ended December 31, 2020 have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and other commitments in the normal course of business and does not include any adjustments that might result from uncertainty about our ability to continue as a going concern. Such assumption may not be justified. Our liquidity has been negatively impacted by declines in fee earning AUM and our substantial indebtedness and associated debt-related expenses. As a result of these and other factors, we commenced the Medley LLC Chapter 11 Case. The Medley LLC Plan of Reorganization contemplates a reorganization involving, among other things, the issuance of shares of MDLY Class A common stock in connection with the treatment of holders of Notes claims; however, the Medley LLC Plan of Reorganization is subject to the approval of the Bankruptcy Court, and other conditions precedent. The inclusion in our financial statements of disclosures that express substantial doubt about our ability to continue as a going concern may negatively impact the trading price of our securities and have an adverse impact on our relationships with third parties with whom we do business, including our clients, investors and strategic partners (and prospective clients, investors and strategic partners), and other third parties, and could have a material adverse impact on our business, financial condition, results of operations, cash flows, and the aforementioned parties respective willingness to maintain relationships, contractual or otherwise, with us.
- Accounting & Financial Operations - Risk 6As a result of the Medley LLC Chapter 11 Case, our historical financial information may not be indicative of our future performance, which may be volatile.
During the Medley LLC Chapter 11 Case, we expect our financial results to continue to be volatile as restructuring activities and expenses impact our consolidated financial statements. As a result, our historical financial performance is likely not indicative of our financial performance after the Petition Date. In addition, as described in this Form 10-K, the Medley LLC Plan of Reorganization (which is subject to Bankruptcy Court approval and other conditions precedent), contemplates that our capital structure will be significantly altered, that Medley LLC's 2024 Notes and 2026 Notes will be extinguished, and that a significant amount of MDLY Class A common stock will be issued in connection therewith, resulting in substantial dilution to MDLY's existing stockholders. Even if the Medley LLC Plan of Reorganization is approved by the Bankruptcy Court in the form as proposed, or if such plan is approved with significant amendments, or if an alternative plan of reorganization is approved and implemented, we would expect that our existing capital structure would be fundamentally altered. If Medley LLC emerges from Chapter 11, the amounts reported in subsequent consolidated financial statements may materially change relative to our historical consolidated financial statements. In connection with the Medley LLC Chapter 11 Case and the Medley LLC Plan of Reorganization, it is also possible that additional restructuring and related charges may be identified and recorded in future periods. Such charges could be material to our consolidated financial position, liquidity and results of operations.
- Debt & Financing - Risk 7Rising interest rates may adversely affect the value of our portfolio investments which could have an adverse effect on our business, financial condition and results of operations.
Our debt investments may be based on floating rates, such as LIBOR, EURIBOR, the Federal Funds Rate or the Prime Rate. General interest rate fluctuations may have a substantial negative impact on our investments, the value of our shares and our rate of return on invested capital. A reduction in the interest rates on new investments relative to interest rates on current investments could also have an adverse impact on our net interest income. An increase in interest rates could decrease the value of any investments our funds hold which earn fixed interest rates, including subordinated loans, senior and junior secured and unsecured debt securities and loans and high yield bonds, and also could increase our interest expense, thereby decreasing our net income. Also, an increase in interest rates available to investors could make investment in our funds if such funds are not able to increase our distribution rate, which could reduce the value of the funds' securities. Because our funds may borrow funds and may issue preferred shares to finance investments, such funds' net investment income may depend, in part, upon the difference between the rate at which such funds borrow funds or pay distributions on preferred shares and the rate that the funds' investments yield. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. In periods of rising interest rates, the cost of funds would increase except to the extent our funds have issued fixed rate debt or preferred shares, which could reduce our net investment income. A change in the general level of interest rates can be expected to lead to a change in the interest rate our funds receive on our debt investments. Accordingly, a change in the interest rate could make it easier for our funds to meet or exceed the performance threshold and may result in a substantial increase in the amount of incentive fees payable to us with respect to the portion of the incentive fee based on income. In addition, the occurrence of recessionary conditions and/or negative developments in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our investments, and our ongoing operations, costs and profitability. Any such unfavorable economic conditions, including rising interest rates, may also increase our funding costs, limit our access to capital markets or negatively impact our ability to obtain financing, particularly from the debt markets. In addition, any future financial market uncertainty could lead to financial market disruptions and could further impact our ability to obtain financing. These events could limit our investment originations, limit our ability to grow and negatively impact our operating results and financial condition.
- Debt & Financing - Risk 8Our consolidated subsidiary Medley LLC has filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court, which is subject to the risks and uncertainties associated with all bankruptcy cases.
The Medley LLC Chapter 11 Case could have a material adverse effect on our business, financial condition, results of operations, and cash flows. Medley LLC is conducting its business under Bankruptcy Court protection and operating as a debtor-in-possession, and MDLY is serving as co-plan sponsor in connection with the Medley LLC Plan of Reorganization. During the pendency of the Medley LLC Chapter 11 Case, our management may be required to spend a significant amount of time and effort dealing with restructuring matters rather than focusing exclusively on our business operations. The Medley LLC Chapter 11 Case may also make it more difficult to retain management and the key personnel necessary to the success of our business. In addition, during the pendency of the Medley LLC Chapter 11 Case, our clients, investors and/or strategic partners might lose confidence in Medley LLC's ability to reorganize its business successfully and may seek to establish alternative advisory and/or other relationships, renegotiate the terms of our agreements, terminate their relationships with us and/or require financial assurances from us. If this occurs, clients, investors and/or strategic partners may lose confidence in our ability to provide them the level of service they expect, resulting in a significant decline in our fees, revenues, profitability, and related cash flow. Other significant risks include or relate to the following: - the effects of the filing of the Medley LLC Chapter 11 Case on our business and the interests of various constituents, including, but not limited to MDLY's Class A stockholders and the holders of Medley LLC's: (a) senior unsecured 2024 Notes with a maturity date of January 20, 2024, issued pursuant to that certain indenture agreement (as may be amended, restated, supplemented, or otherwise modified from time to time) dated August 9, 2016, between Medley LLC, as issuer, and U.S. Bank National Association, as trustee (the "2024 Notes"); and (b) senior unsecured 2026 Notes with a maturity date of August 15, 2026, issued pursuant to that certain indenture agreement (as may be amended, restated, supplemented, or otherwise modified from time to time) dated August 9, 2016, between Medley LLC, as issuer, and U.S. Bank National Association, as trustee (the "2026 Notes," and together with the 2024 Notes, the "Notes" or "debt Instruments");- Bankruptcy Court rulings in the Medley LLC Chapter 11 Case, including with respect to Medley LLC's motions, third-party motions and any objections to the Medley LLC Plan of Reorganization, as well as the outcome of any other pending litigation;- our ability to operate within the restrictions of bankruptcy protection and within the limitations of any orders entered by the Bankruptcy Court in connection with the Medley LLC Chapter 11 Case;- Medley LLC's existing management's ability to maintain control as debtor-in-possession during the pendency of the Medley LLC Chapter 11 Case;- our ability to operate within our liquidity limitations, both during the pendency of the Medley LLC Chapter 11 Case and after implementation of the Medley LLC Plan of Reorganization (which is subject to the approval of the Bankruptcy Court, as to which no assurances can be given, and other conditions precedent), and our ability to obtain sufficient financing and access to capital to allow Medley LLC to emerge from bankruptcy protection and successfully execute our business plan post-emergence;- increased professional fees and advisory costs during the pendency of the Medley LLC Chapter 11 Case;- the risks associated with restrictions on our ability to pursue some of our business strategies during the pendency of the Medley LLC Chapter 11 Case;- uncertainties regarding the reactions of our clients, investors, strategic partners (and prospective clients, investors, strategic partners), service providers and other third parties, to the Medley LLC Chapter 11 Case, and their respective willingness to maintain relationships, contractual or otherwise, with us;the length of time that Medley LLC operates under Chapter 11 protection and the continued availability of operating capital during the pendency of the Medley LLC Chapter 11 Case; - MDLY's ability as co-plan sponsor and Medley LLC's ability as debtor to satisfy the conditions precedent to consummation of the Medley LLC Plan of Reorganization;- the potential adverse effects of the Medley LLC Chapter 11 Case on our business, cash flows, liquidity, financial condition and results of operations;- the ultimate outcome of the Medley LLC Chapter 11 Case in general;- the issuance of a substantial number of shares of MDLY Class A common stock in connection with the proposed treatment of the Notes and claims held by Strategic Capital Advisory Services, LLC (the "Strategic Capital Claims"), in connection with the Medley LLC Plan of Reorganization, and the substantial dilution resulting therefrom;- the trading price and volatility of MDLY's Class A common stock and Medley LLC's Notes, and the related ability to remain listed on the NYSE;- the potential material adverse effects of claims that are not discharged in the Medley LLC Chapter 11 Case and under the Medley LLC Plan of Reorganization;- uncertainties regarding our ability to retain and motivate key personnel; and - uncertainties and continuing risks associated with our ability to achieve our stated goals and continue as a going concern. Further, under Chapter 11, transactions outside the ordinary course of business require the prior approval of the Bankruptcy Court, which may limit our ability to respond in a timely manner to certain events, to take advantage of certain opportunities, or adapt to changing market or industry conditions. We are also subject to risks and uncertainties with respect to the actions and decisions of creditors and other third parties who have interests in the Medley LLC Chapter 11 Case that may be inconsistent with our plans. These risks and uncertainties could materially affect our business and operations in various ways and may significantly increase the duration and cost of the Medley LLC Chapter 11 Case. Because of the risks and uncertainties associated with the Medley LLC Chapter 11 Case, we cannot predict or quantify the ultimate impact that events occurring during the Medley LLC Chapter 11 Case may have on our business, cash flows, liquidity, financial condition and results of operations, nor can we predict, given that the Medley LLC Plan of Reorganization is subject to Bankruptcy Court approval, the ultimate impact that events occurring during the Medley LLC Chapter 11 Case may have on our corporate or capital structure. See the discussion appearing in in "Item 1. – Business" of this Form 10-K under the caption "Proposed Plan of Reorganization of Medley LLC" for a description of the proposed Medley LLC Plan of Reorganization, the consummation of which is subject to the approval of the Bankruptcy Court and other conditions precedent. As a result of the Medley LLC Chapter 11 Case, realization of Medley LLC's assets and liquidation of its liabilities are subject to uncertainty. While operating under the protection of the Bankruptcy Code, and subject to Bankruptcy Court approval or otherwise as permitted in the ordinary course of business, Medley LLC may sell or otherwise dispose of assets and liquidate or settle liabilities for amounts other than those reflected in its consolidated financial statements.
- Debt & Financing - Risk 9Our long-term liquidity requirements and the adequacy of our capital resources are difficult to predict at this time.
We face uncertainty regarding the adequacy of our liquidity and capital resources and have extremely limited, if any, access to additional financing. In addition to the cash requirements necessary to fund our ongoing operations, we have incurred significant professional fees and other costs in connection with preparation for the Medley LLC Chapter 11 Case and expect that we will continue to incur significant professional fees and other costs throughout the Medley LLC Chapter 11 Case. We cannot assure you that cash on hand and cash flow from operations will be sufficient to continue to fund our operations and allow us to satisfy our obligations related to the Medley LLC Chapter 11 Case; further, if such cash sources proved insufficient, we can provide no assurances that we would be able to secure additional interim financing or adequate exit financing sufficient to meet our liquidity needs (or if sufficient funds are available, that they would be offered to us on acceptable terms). Our liquidity, including our ability to meet our ongoing operational obligations, depends on, among other things: (1) our ability to comply with the terms and conditions of the orders entered by the Bankruptcy Court in connection with the Medley LLC Chapter 11 Case, (2) our ability to maintain adequate cash on hand, (3) our ability to generate sufficient cash flow from operations, (4) to the extent necessary, our ability to access credit, (5) our ability to consummate the Medley LLC Plan of Reorganization, and (6) the overall cost, duration and outcome of the Medley LLC Chapter 11 Case.
- Corporate Activity and Growth - Risk 10The Medley LLC Plan of Reorganization may not become effective.
Even if the Medley LLC Plan of Reorganization is confirmed by the Bankruptcy Court, it may not become effective because it is subject to the satisfaction of certain conditions precedent, some of which are beyond our control. There can be no assurance that such conditions precedent will be satisfied and thus no assurance that the Medley LLC Plan of Reorganization will become effective and that Medley LLC will emerge from the Medley LLC Chapter 11 Case as contemplated by the Medley LLC Plan of Reorganization. If the Chapter 11 process takes longer than anticipated and Medley LLC remains in bankruptcy protection longer than expected, and the effective date of the Medley LLC Plan of Reorganization is delayed, MDLY and Medley LLC may not have sufficient cash available to operate our business. In that case, we may need new or additional post-petition financing, which may increase the cost of consummating the Medley LLC Plan of Reorganization. There can be no assurance of the terms on which such financing may be available or if such financing will be available at all. If the transactions contemplated by the Medley LLC Plan of Reorganization are not completed, it may become necessary to amend the Medley LLC Plan of Reorganization, potentially in a material fashion. The terms of any such amendment are uncertain and could result in materially different treatment for stakeholders, material additional expense and material delays to the Medley LLC Chapter 11 Case.
- Corporate Activity and Growth - Risk 11The Medley LLC Plan of Reorganization is based in large part upon assumptions and analyses developed by us, with the assistance of our financial advisor/investment banker. If these assumptions and analyses prove to be incorrect, our plan may be unsuccessful in its execution.
The Medley LLC Plan of Reorganization will affect both our capital structure and the ownership, structure and operation of our business and reflects assumptions and analyses based on our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we consider appropriate under the circumstances. In addition, the Medley LLC Plan of Reorganization relies upon financial projections developed by us with the assistance of our financial advisor/investment banker, including with respect to fees, revenues, debt service, and cash flow. Financial forecasts are necessarily speculative, and it is likely that one or more of the assumptions and estimates that are the basis of these financial forecasts will not be accurate. Whether actual future results and developments will be consistent with our expectations and assumptions depends on a number of factors, including but not limited to (1) our ability to substantially change our capital structure, (2) our ability to obtain adequate liquidity and financing sources, (3) our ability to maintain clients', investors' and strategic partners' confidence in our viability as a continuing enterprise and to attract and retain sufficient business from and partnership endeavors with them, (4) our ability to retain key employees and (5) the overall strength and stability of general economic conditions of the markets in which we operate. The failure of any of these factors could materially adversely affect the successful reorganization of our business. Consequently, there can be no assurance that the results or developments contemplated by the Medley LLC Plan of Reorganization, even if confirmed by the Bankruptcy Court and implemented by us, will occur or, even if they do occur, that they will have the anticipated effects on us and our subsidiaries or our businesses or operations. The failure of any such results or developments to materialize as anticipated could materially adversely affect the successful execution of the Medley LLC Plan of Reorganization.
- Corporate Activity and Growth - Risk 12Even if the Medley LLC Plan of Reorganization is consummated, we may not be able to achieve our stated goals and continue as a going concern.
Even if the Medley LLC Plan of Reorganization is consummated, we may continue to face a number of risks that are beyond our control, such as changes in economic conditions, changes in the financial markets, investment values or industry in general, changes in demand for our services and increasing expenses. Some of these risks typically become more acute when a case under the Bankruptcy Code continues for a protracted period of time without indication of how or when the transactions under a Chapter 11 plan of reorganization will close. As a result of these and other risks, we cannot guarantee that the Medley LLC Plan of Reorganization will achieve our stated goals. Furthermore, even if Medley LLC's debts are reduced or discharged through the Medley LLC Plan of Reorganization, Medley LLC, MDLY and/or our affiliates may need to raise additional funds through one or more public or private debt or equity financings or other means to fund our business after the completion of the Medley LLC Chapter 11 Case. Our access to additional capital may be limited, if it is available at all. Therefore, adequate funds may not be available when needed or may not be available on favorable terms. As a result, the Medley LLC Plan of Reorganization may not become effective and, thus, we cannot assure you of our ability to continue as a going concern, even if the Medley LLC Plan of Reorganization is confirmed. Further, because our investment management agreements are terminable at will, the Medley LLC Plan of Reorganization may result in the termination of such agreements which would further adversely affect our business and operating results.
- Corporate Activity and Growth - Risk 13The Medley LLC Chapter 11 Case limits the flexibility of our management team in running our business.
While Medley LLC operates its business as debtor-in-possession under supervision by the Bankruptcy Court, we are required to obtain the approval of the Bankruptcy Court prior to engaging in activities or transactions outside the ordinary course of business. Bankruptcy Court approval of non-ordinary course activities entails preparation and filing of appropriate motions with the Bankruptcy Court, negotiation with the various other parties-in-interest and one or more hearings. Other parties-in-interest may be heard at any Bankruptcy Court hearing and may raise objections with respect to these motions. This process may delay major transactions and limit our ability to respond quickly to opportunities and events. In addition to constraints on Medley LLC's activities as debtor-in-possession, MDLY's role as co-plan sponsor in connection with the Medley LLC Plan of Reorganization may place limitations and restrictions on MDLY's business activities and resources. Furthermore, in the event the Bankruptcy Court does not approve a proposed activity or transaction, we would be prevented from engaging in activities and transactions that we believe are beneficial to us.
Risk Highlights Q4, 2020
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 86
- Share Price & Shareholder Rights - Risk 1AddedThe Medley LLC Plan of Reorganization contemplates the issuance of a substantial quantity of MDLY Class A common stock, which will result in substantial dilution to MDLY's Class A existing stockholders.
The Medley LLC Plan of Reorganization, which is subject to the approval of the Bankruptcy Court and various conditions precedent, contemplates the issuance of a substantial number of shares of MDLY Class A Common Stock in connection with the proposed treatment of Medley LLC Notes and Strategic Capital Claims. In connection with the Medley LLC Plan of Reorganization, it is anticipated that certain equity incentive awards will also be issued to Medley personnel under the 2014 Plan, as amended. It is expected that the terms related to such awards will be set forth in a supplement to the Medley LLC Plan of Reorganization, with issuance of the awards subject to confirmation of the Medley LLC Plan of Reorganization. See the discussion appearing in in "Item 1. – Business" of this Form 10-K under the caption "Proposed Plan of Reorganization of Medley LLC" for a description of the proposed Medley LLC Plan of Reorganization, the consummation of which is subject to the approval of the Bankruptcy Court and other conditions precedent. The issuances of securities contemplated by the Medley LLC Plan of Reorganization, including the proposed issuances of Class A common stock in connection with the treatment of noteholder claims and Strategic Capital claims, as well as any equity incentive awards issued to Medley personnel, is expected to result in substantial dilution to existing MDLY stockholders owning shares of Class A common stock. As a result, the value attributable to shares of MDLY's existing Class A common stock is expected to be materially affected by the reorganization of our capital structure through the Medley LLC Chapter 11 Case and the Medley LLC Plan of Reorganization. Any trading in shares of MDLY's Class A common stock or the Notes during the pendency of the Medley LLC Chapter 11 Case is highly speculative and poses substantial risks to purchasers of MDLY's Class A Common Stock or Medley LLC's Notes.
- Share Price & Shareholder Rights - Risk 2AddedTrading in our securities during the pendency of the Medley LLC Chapter 11 Case is highly speculative and poses substantial risks. The market price for such securities has been, and may continue to be, volatile. While the Medley LLC Plan of Reorganization contemplates that the Notes will be extinguished in exchange for MDLY Class A common stock, we can provide no assurances that Medley LLC will be able to maintain its listing on the NYSE prior to such exchange.
Trading in our securities has been, and during the pendency of the Medley LLC Chapter 11 Case continues to be, highly speculative and poses substantial risks. The market price for our securities has been, and may continue to be, volatile. Under the Medley LLC Plan of Reorganization, it is contemplated that the Notes will be extinguished in exchange for shares of MDLY Class A common stock. See the discussion appearing in in "Item 1. – Business" of this Form 10-K under the caption "Proposed Plan of Reorganization of Medley LLC" for a description of the proposed Medley LLC Plan of Reorganization, the consummation of which is subject to the approval of the Bankruptcy Court and other conditions precedent. While the Medley LLC Plan of Reorganization, if confirmed by the Bankruptcy Court and implemented as contemplated will result in dilution to the existing holders of MDLY's Class A common stock, the Medley LLC Plan of Reorganization avoids a potentially value destructive change in control and enables the survival of the overall enterprise as a going concern, preserving and maximizing return and value for all stakeholders. However, if the Medley LLC Plan of Reorganization is not approved, MDLY's Class A common stock and the Notes could potentially have no value. The Medley LLC Plan of Reorganization contemplates that the Notes will be extinguished in exchange for MDLY Class A common stock, in accordance with the terms of the Medley LLC Plan of Reorganization, which is subject to the approval of the Bankruptcy Court and other conditions precedent. Therefore, we would expect that if the Medley LLC Plan of Reorganization is confirmed by the Bankruptcy Court and becomes effective, the Notes would be cancelled in exchange for the recovery provided under the Medley LLC Plan of Reorganization, and the NYSE listing of the notes would cease at that time. However, we cannot provide any assurances that the NYSE would not delist the 2024 Notes and the 2026 Notes earlier. The NYSE has substantial discretion in discontinuing the listing of securities of issuers that have filed for reorganization relief under the bankruptcy laws, so we can provide no assurances that the listing of the Notes will be maintained during the period preceding any confirmation and effectiveness of the Medley LLC Plan of Reorganization. Further, if Medley LLC does not have positive cash flow or is not in sound financial health, its securities could be delisted pursuant to Section 802.01D of the NYSE Listed Company Manual (the "Manual") if the trading price of its securities on the NYSE is abnormally low, which has generally been interpreted to mean at levels below $0.16 per share, and its securities could also be delisted pursuant to Section 802.01 of the Manual if Medley LLC's average market capitalization over a consecutive 30 day-trading period is less than $15 million. In these events, Medley LLC would not have an opportunity to cure the market capitalization deficiency, and its securities would be delisted immediately and suspended from trading on the NYSE. The NYSE has substantial discretion in discontinuing the listing of securities of issuers that have filed for reorganization relief under the bankruptcy laws, so we can provide no assurances that the listing of the Notes will be maintained during the period preceding any confirmation and effectiveness of the Medley LLC Plan of Reorganization. If a suspension or delisting were to occur, there would be significantly less liquidity in the suspended or delisted securities. In addition, its ability to raise additional necessary capital through equity or debt financing, and attract and retain personnel by means of equity compensation, would be greatly impaired. Furthermore, with respect to any suspended or delisted securities, Medley LLC would expect decreases in institutional and other investor demand, analyst coverage, market making activity and information available concerning trading prices and volume, and fewer broker-dealers would be willing to execute trades with respect to such securities. A suspension or delisting would likely decrease the attractiveness of Medley LLC's securities to investors and cause the trading volume of its securities to decline, which could result in a further decline in the market price of its securities.
- Share Price & Shareholder Rights - Risk 3AddedWe can provide no assurances that MDLY will be able to maintain its listing on the NYSE.
MDLY's Class A Common Stock is currently listed on the NYSE. In order for our Class A Common Stock to continue to be listed on the NYSE, we are required to comply with various listing standards set forth in the Manual, including Section 802.01C, which requires the maintenance of a minimum average closing price of at least $1.00 per share during a consecutive 30 trading-day period (the "Market Capitalization Requirement"). In addition to the Market Capitalization Requirement, we are considered to be below compliance if our average market capitalization over a consecutive 30 day-trading period is less than $50 million and, at the same time, our stockholders' equity is less than $50 million pursuant to Section 802.01B of the Manual (the "Stockholders' Equity Requirement" and, together with the Market Capitalization Requirement, the "Listing Requirements"). We can provide no assurances that the listing of MDLY's Class A common stock on the NYSE will be maintained in the future. As previously disclosed, on April 17, 2020, MDLY received written notice (the "Notice") from the NYSE that MDLY did not at the time of the Notice (nor does MDLY at the time of filing of this Form 10-K) satisfy the Listing Requirements set forth in the Manual As noted in the Notice, as of April 16, 2020, MDLY's 30 trading-day average global market capitalization was approximately $26.5 million and its stockholders' equity was approximately ($118.1) million as of December 31, 2019. On June 1, 2020, MDLY submitted a business plan to the NYSE reflecting MDLY's intent to seek to regain compliance with the Listing Standards. On July 27, 2020, the NYSE accepted the plan and extended the cure period from December 26, 2020 to December 26, 2021, with MDLY subject to ongoing quarterly monitoring for compliance with said plan. However, MDLY can provide no assurances that it will be able to satisfy any of the steps outlined above and maintain the listing of the MDLY Class A common stock on the NYSE, or that MDLY's continuing noncompliance with the Listing Standards or the Medley LLC Chapter 11 Case will not materially adversely affect or prevent the continued listing of MDLY's Class A common stock in the future. Any suspension of trading or delisting of MDLY's Class A common stock from the NYSE would have a material adverse effect on holders of shares of MDLY's Class A common stock (including on holders who would receive such shares as contemplated by the Medley LLC Plan of Reorganization), and on the liquidity of such shares and the ability to trade and sell such shares, and could materially adversely affect the market price of the MDLY Class A common stock. The commencement of suspension or delisting procedures by an exchange remains, at all times, at the discretion of such exchange and would be publicly announced by the exchange. If a suspension or delisting were to occur, there would be significantly less liquidity in the suspended or delisted securities. In addition, MDLY's ability to raise additional necessary capital through equity or debt financing, and attract and retain personnel by means of equity compensation, would be greatly impaired. Furthermore, with respect to any suspended or delisted securities, MDLY would expect decreases in institutional and other investor demand, analyst coverage, market making activity and information available concerning trading prices and volume, and fewer broker-dealers would be willing to execute trades with respect to such securities. A suspension or delisting would likely decrease the attractiveness of shares of MDLY's Class A Common Stock to investors and cause the trading volume of the Class A Common Stock to decline, which could result in a further decline in the market price of such Class A Common Stock.
- Share Price & Shareholder Rights - Risk 4AddedWe may not be able to obtain the Bankruptcy Court's confirmation of the Medley LLC Plan of Reorganization or may have to materially modify the terms of the Medley LLC Plan of Reorganization.
Even if the Medley LLC Plan of Reorganization is approved by each class of holders of claims and interests entitled to vote (a "Voting Class"), the Bankruptcy Court, which, as a court of equity, may exercise substantial discretion and may choose not to confirm the Medley LLC Plan of Reorganization. Section 1129 of the Bankruptcy Code requirements include, among other things, a showing that confirmation of the Medley LLC Plan of Reorganization will not be followed by liquidation or the need for further financial reorganization of Medley LLC (the feasibility requirement), and that the value of distributions to dissenting holders of claims and interests will not be less than the value such holders would receive if Medley LLC liquidated under Chapter 7 (as defined below). Although we believe that the Medley LLC Plan of Reorganization will satisfy such tests, there can be no assurance that the Bankruptcy Court or other parties in interest will reach the same conclusion. Confirmation of the Medley LLC Plan of Reorganization will also be subject to certain conditions precedent. These conditions may not be met and there can be no assurance that the consenting stakeholders will agree to modify or waive such conditions. Further, changed circumstances may necessitate material changes to the Medley LLC Plan of Reorganization. Any such modifications could result in material less favorable treatment than the treatment currently anticipated to be included in the Medley LLC Plan of Reorganization. Such less favorable treatment could include a distribution of property to the class affected by the modification of a materially lesser value than currently anticipated to be included in the Medley LLC Plan of Reorganization or no distribution of property whatsoever under the Medley LLC Plan of Reorganization. Changes to the Medley LLC Plan of Reorganization may also delay the confirmation of the Medley LLC Plan of Reorganization and Medley LLC's emergence from bankruptcy, which could result in, among other things, additional incurred costs and expenses to Medley LLC's estate as debtor in bankruptcy.
- Share Price & Shareholder Rights - Risk 5ChangedPotential conflicts of interest may arise between our holders of Class A Common Stock and our fund investors.
Our subsidiaries that serve as the investment advisors to, or the general partners of, our funds may have fiduciary duties and/or contractual obligations to those funds and their investors. As a result, we expect to regularly take actions with respect to the purchase or sale of investments in our funds, the structuring of investment transactions for the funds or otherwise in a manner consistent with such duties and obligations but that might at the same time adversely affect our near-term results of operations or cash flows. This may in turn have an adverse effect on the price of our Class A Common Stock and/or on the interests of our holders of Class A Common Stock. Additionally, to the extent we fail to appropriately deal with any such conflicts of interest, it could negatively impact our reputation and ability to raise additional funds.
- Share Price & Shareholder Rights - Risk 6ChangedWe derive a substantial portion of our revenues from SIC, which is managed pursuant to an advisory agreement that may be terminated or a fund partnership agreements that permit fund investors to remove us as the general partner.
With respect to our permanent capital vehicle, SIC's investment management agreement must be approved annually by its board of directors or by the vote of a majority of the stockholders and the majority of the independent members of its board of directors and, in certain cases, by its stockholders, as required by law. In addition, as required by the Investment Company Act, SIC has the right to terminate its management agreement without penalty upon 60 days' written notice to its adviser and the agreement terminates automatically in the event of an "assignment" as defined under the Investment Company Act. Further, such agreement may be terminated as a result of the Medley LLC Chapter 11 Case. Termination of this agreement would reduce the fees we earn from SIC, which could have a material adverse effect on our results of operations. For the years ended December 31, 2020, 2019 and 2018, our investment advisory relationship with SIC represented approximately 46.6%, 43.6% and 40.4%, respectively, of our total management fees. This investment advisory relationships also represented, in the aggregate, 25.0% of our AUM at December 31, 2020. There can be no assurance that our investment management agreement with respect to SIC will remain in place. With respect to our long-dated private funds, insofar as we control the general partner of such funds, the risk of termination of the investment management agreement for such funds is limited, subject to our fiduciary or contractual duties as general partner. However, the applicable fund partnership agreements may permit the limited partners of each respective fund to remove us as general partner by a majority or, in certain circumstances, a super majority vote. In addition, the partnership agreements provide for dissolution of the partnership upon certain changes of control. Our SMAs are governed by investment management agreements that may be terminated by investors at any time for cause under the applicable agreement and "cause" may include the departure of specified members of our senior management team. Absent cause, the investment management agreements that govern our SMAs are generally not terminable during the specified investment period or following the specified investment period, prior to the scheduled maturities or disposition of the subject AUM. In addition, certain of the investment management agreements or partnership agreements provide for a termination right in the event of a bankruptcy filing by the general partner, investment manager, or one of their respective affiliates, as in the case of the Medley LLC Chapter 11 Case. However, provisions in contracts that allow for termination upon a Chapter 11 bankruptcy filing or another type of insolvency event are generally invalid under the Bankruptcy Code as improper ipso facto clauses. If a party were to seek to terminate one of our management or partnership agreement that adversely impacted property of Medley LLC's estate, such party would likely have to file a motion with the Bankruptcy Court seeking relief from the automatic stay and argue that the agreement should be terminated for reasons in addition to the Chapter 11 bankruptcy filing. Termination of these agreements would negatively affect the fees we earn from the relevant funds, which could have a material adverse effect on our results of operations
- Share Price & Shareholder Rights - Risk 7ChangedThe market price of our Class A common stock may decline due to the large number of shares of Class A common stock eligible for sale or future issuance, including pursuant to the Medley LLC Plan of Reorganization.
The market price of shares of our Class A common stock could decline as a result of sales of a large number of shares of Class A common stock in the market or the perception that such sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell shares of Class A common stock in the future at a time and at a price that we deem appropriate. In addition, if confirmed by the Bankruptcy Court, the Medley LLC Plan of Reorganization will provide for a substantial number of shares of Class A Common Stock to be reserved for issuance to employees and creditors. The market price of shares of our Class A common stock could decline as a result of such sales or future issuances. These sales and future issuances, also might make it more difficult for holders of our Class A common stock to sell such stock in the future at a time and at a price that they deem appropriate.
- Share Price & Shareholder Rights - Risk 8A change of control of us could result in termination of our investment advisory agreements.
Pursuant to the Investment Company Act, the investment advisory agreement for SIC, the BDC we advise, automatically terminates upon its deemed "assignment" and a BDC's board and shareholders must approve a new agreement in order for us to continue to act as its investment adviser. In addition, pursuant to the Investment Advisers Act, each of our investment advisory agreements for the separate accounts we manage may not be "assigned" without the consent of the client. A sale of a controlling block of our voting securities and certain other transactions would be deemed an "assignment" pursuant to both the Investment Company Act and the Investment Advisers Act. If such a deemed assignment occurs, there can be no assurance that we will be able to obtain the necessary consents from clients whose funds are managed pursuant to separate accounts or the necessary approvals from the board and shareholders of SIC, the SEC-registered BDC that we advise. An assignment, actual or constructive, would trigger these termination and consent provisions and, unless the necessary approvals and consents are obtained, could materially and adversely affect our ability to continue managing client accounts, resulting in the loss of assets under management and a corresponding loss of revenue.
- Share Price & Shareholder Rights - Risk 9Third-party investors in our private funds may not satisfy their contractual obligation to fund capital calls when requested, which could materially adversely affect a fund's operations and performance.
Investors in our private funds make capital commitments to those funds that we are entitled to call from those investors at any time during prescribed periods. We depend on investors fulfilling and honoring their commitments when we call capital from them for those funds to consummate investments and otherwise pay their obligations when due. Any investor that did not fund a capital call would be subject to several possible penalties, including having a meaningful amount of its existing investment forfeited in that fund. However, the impact of the penalty is directly correlated to the amount of capital previously invested by the investor in the fund and if an investor has invested little or no capital, for instance early in the life of the fund, then the forfeiture penalty may not be as meaningful. Investors may also negotiate for lesser or reduced penalties at the outset of the fund, thereby limiting our ability to enforce the funding of a capital call. Third-party investors in private funds often use distributions from prior investments to meet future capital calls. In cases where valuations of existing investments fall and the pace of distributions slows, investors may be unable to make new commitments to third-party managed investment funds such as those advised by us. A failure of investors to honor a significant amount of capital calls for any particular fund or funds could have a material adverse effect on the operation and performance of those funds.
- Share Price & Shareholder Rights - Risk 10Anti-takeover provisions in our organizational documents and Delaware law might discourage or delay acquisition attempts for us that you might consider favorable.
Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may make the merger or acquisition of our company more difficult without the approval of our board of directors. Among other things, these provisions: - authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include super voting, special approval, dividend, or other rights or preferences superior to the rights of the holders of Class A Common Stock;- prohibit holders of Class A Common Stock from acting by written consent unless such action is recommended by all directors then in office, but permit holders of Class B Common Stock to act by written consent without requiring any such recommendation;- provide that the board of directors is expressly authorized to make, alter, or repeal our bylaws and that our stockholders may only amend our bylaws with the approval of 80% or more of all of the outstanding shares of our capital stock entitled to vote; and - establish advance notice requirements for nominations for elections to our board or for proposing matters that can be acted upon by stockholders at stockholder meetings. Further, as a Delaware corporation, we are also subject to provisions of Delaware law, which may impair a takeover attempt that our stockholders may find beneficial. These anti-takeover provisions and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change in control of our company, including actions that our stockholders may deem advantageous, or negatively affect the trading price of our Class A common stock. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire.
- Share Price & Shareholder Rights - Risk 11The disparity in the voting rights among the classes of our capital stock may have a potential adverse effect on the price of our Class A Common Stock.
Each share of our Class A Common Stock entitles its holder to one vote on all matters to be voted on by stockholders generally. Medley Group LLC, as the holder of our Class B Common Stock, has a number of votes equal to 10 times the number of LLC Units held by all non-managing members of Medley LLC for so long as our pre-IPO owners and then-current Medley personnel hold at least 10% of the aggregate number of shares of Class A common stock and LLC Units (excluding the LLC Units held by Medley Management Inc.). The difference in voting rights could adversely affect the value of our Class A Common Stock by, for example, delaying or deferring a change of control or if investors view, or any potential future purchaser of our company views, the superior voting rights of the Class B Common Stock to have value.
- Share Price & Shareholder Rights - Risk 12We are a "controlled company" within the meaning of the NYSE's rules and, as a result, qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You do not have the same protections afforded to stockholders of companies that are subject to such requirements.
Medley Group LLC, an entity owned by our pre-IPO owners holds a majority of the combined voting power of all classes of our stock entitled to vote generally in the election of directors. In addition, because Medley Group LLC, as the holder of our Class B Common Stock, has a number of votes equal to 10 times the number of LLC Units held by all non-managing members of Medley LLC for so long as our pre-IPO owners and then-current Medley personnel hold at least 10% of the aggregate number of shares of Class A Common Stock and LLC Units (excluding the LLC Units held by Medley Management Inc.), we anticipate that Medley Group LLC will continue to have at least a majority of the combined voting power of our Class A and Class B Common Stock even when our pre-IPO owners own less than a majority economic interest in our company. As a result, we are a "controlled company" within the meaning of the corporate governance standards of the New York Stock Exchange. Under these rules, a company of which more than 50% of the voting power in the election of directors is held by an individual, group or another company is a "controlled company" and may elect not to comply with certain corporate governance requirements. For example, controlled companies: - are not required to have a board that is composed of a majority of "independent directors," as defined under the rules of such exchange;- are not required to have a compensation committee that is composed entirely of independent directors; and - are not required to have a nominating and corporate governance committee that is composed entirely of independent directors. We are utilizing these exemptions. As a result, a majority of the directors on our board are not independent. In addition, our compensation and nominating and corporate governance committees do not consist entirely of independent directors. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.
- Share Price & Shareholder Rights - Risk 13Medley Management Inc. is controlled by our pre-IPO owners, whose interests may differ from those of our public stockholders.
As of March 26, 2021, our Pre-IPO owners control 66.9% of the voting power of Medley Management Inc. through Class A Common Stock held by entities controlled by the pre-IPO owners. Medley Group LLC, an entity controlled by one of our pre-IPO owners, holds approximately 14.0% of the combined voting power of our Class A and Class B Common Stock as of March 26, 2021. Accordingly, our pre-IPO owners have the ability to elect all of the members of our board of directors, and thereby to control our management and affairs. In addition, they are able to determine the outcome of all matters requiring stockholder approval, including mergers and other material transactions, and are able to cause or prevent a change in the composition of our board of directors or a change in control of our company that could deprive our stockholders of an opportunity to receive a premium for their Class A common stock as part of a sale of our company and might ultimately affect the market price of our Class A common stock.
- Share Price & Shareholder Rights - Risk 14If securities or industry analysts do not publish research or reports about our business, or if they downgrade their recommendations regarding our Class A common stock, our stock price and trading volume could decline.
The trading market for our Class A common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If any of the analysts who cover us downgrades our Class A common stock or publishes inaccurate or unfavorable research about our business, our Class A common stock price may decline. If analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our Class A common stock price or trading volume to decline and our Class A common stock to be less liquid.
- Share Price & Shareholder Rights - Risk 15The market price of shares of our Class A common stock has been and may continue to be volatile, which could cause the value of your investment to decline.
The market price of our common stock has historically experienced and may continue to experience significant volatility. From January 2015 through December 2020, the market price of our common stock has fluctuated from a high of $151.40 per share in the first quarter of 2015 to a low of $2.80 per share in the second quarter of 2020. Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions could reduce the market price of shares of our Class A common stock in spite of our operating performance. In addition, our operating results could be below the expectations of public market analysts and investors due to a number of potential factors, including variations in our quarterly operating results or dividends, if any, to stockholders, additions or departures of key management personnel, failure to meet analysts' earnings estimates, publication of research reports about our industry, litigation and government investigations, changes or proposed changes in laws or regulations or differing interpretations or enforcement thereof affecting our business, adverse market reaction to any indebtedness we may incur or securities we may issue in the future, changes in market valuations of similar companies or speculation in the press or investment community, announcements by our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments, adverse publicity about the industries we participate in or individual scandals, and in response the market price of shares of our Class A common stock could decrease significantly. You may be unable to resell your shares of Class A common stock at or above the price you paid for your shares. In the past few years, stock markets have experienced extreme price and volume fluctuations. In the past, following periods of volatility in the overall market and the market price of a company's securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management's attention and resources.
- Share Price & Shareholder Rights - Risk 16You may be diluted by the future issuance of additional Class A common stock or LLC Units in connection with our incentive plans, acquisitions or otherwise.
As of March 26, 2021, we had 1,938,141 shares of Class A Common Stock authorized but unissued, including approximately 49,999 shares of Class A Common Stock issuable upon exchange of vested LLC Units that are held by the non-managing member of Medley LLC. On January 19, 2021, pursuant to that certain exchange agreement with the Unitholders, Medley Management Inc. issued to Unitholders an aggregate of 2,343,686 shares of Class A Common Stock.in exchange for an equivalent number of vested LLC Units held by Unitholders. Our certificate of incorporation authorizes us to issue these shares of Class A Common Stock and options, rights, warrants and appreciation rights relating to Class A Common Stock for the consideration and on the terms and conditions established by our board of directors in its sole discretion, whether in connection with acquisitions or otherwise. Similarly, the limited liability company agreement of Medley LLC permits Medley LLC to issue an unlimited number of additional limited liability company interests of Medley LLC with designations, preferences, rights, powers and duties that are different from, and may be senior to, those applicable to the LLC Units, and which may be exchangeable for shares of our Class A Common Stock. Additionally, we have reserved an aggregate of 1,900,000 shares of Class A Common Stock and LLC Units for issuance under our 2014 Omnibus Incentive Plan, as amended (the "Plan"), including 402,314 shares issuable upon the vesting of restricted stock units and restricted LLC Units granted as of March 26, 2021. Further, in connection with the Medley LLC Chapter 11 Case, a substantial number of shares of our Class A Common Stock provided for in the 2014 Plan may be reserved for issuance to employees under the proposed Medley LLC Plan of Reorganization. Any Class A Common Stock that we issue, including under our 2014 Plan or other equity incentive plans that we may adopt in the future, would dilute the percentage ownership held by investors who purchase Class A Common Stock.
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