SWK Holdings Corp Stock Compensation Disclosure

Note 9. Stockholders’ Equity

 

Common Stock

 

The total number of shares of common stock, $0.001 par value, that the Company is authorized to issue is 250,000,000.

Issuer Purchases of Equity Securities

 

 On December 21, 2018, the Board authorized a share repurchase program under which the Company was authorized to repurchase up to $3.5 million of the Company’s outstanding shares of common stock, or approximately 312,497 common shares, in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Securities Exchange Act. The December 21, 2018 share repurchase program expired on May 31, 2019 and was renewed on September 5, 2019 and March 26, 2020. Under the March 26, 2020 share repurchase program, the Board authorized the repurchase of up to $2.0 million worth of common shares.

As of December 31, 2020, the Company repurchased an aggregate 384,368 shares of its outstanding common stock, including three privately negotiated purchases outside of the share repurchase programs, at a total cost of $4.2 million or $11.06 per share. The program expired on September 30, 2020. 

Preferred Stock

The Company’s board of directors (the “Board”) may, without further action by the stockholders, issue one or more series of preferred stock and fix the rights and preferences of those shares, including the dividend rights, dividend rates, conversion rights, exchange rights, voting rights, terms of redemption, redemption price or prices, liquidation preferences, the number of shares constituting any series and the designation of such series. As of December 31, 2020, no shares of preferred stock have been issued.

Stock Compensation Plans

The Company’s 2010 Stock Incentive Plan (the “2010 Stock Incentive Plan”) provides for options, restricted stock, and other customary forms of equity to be granted to the Company’s directors, officers, employees, and independent contractors. All forms of equity incentive compensation are granted at the discretion of the Board and have a term not greater than 10 years from the date of grant.

The calculation of the fair values of our stock-based compensation plans requires estimates that require management’s judgments. Under ASC 718, the fair value of each stock option is estimated on the grant date using the Black-Scholes option-pricing model. The valuation models require assumptions and estimates to determine expected volatility, expected life and expected risk-free interest rates. The expected volatility was determined using historical volatility of our stock based on the contractual life of the award. The risk-free interest rate assumption was based on the yield on zero-coupon U.S. Treasury strips at the award grant date. In valuing options granted in the fiscal years ended December 31, 2020 and 2019, we used the following weighted average assumptions: 

		For the Year Ended December 31,
		2020				2019
Risk-free interest rate			0.40 - 0.47%				2.2%
Expected stock-price volatility			47.9 - 48.3%				31.8%
Expected life			6.2 years				5.8 years

 

The following table summarizes activities under the 2010 Stock Incentive Plan for the indicated periods:

 

		Options Outstanding
		Number of Shares				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term (in years)				Aggregate Intrinsic Value (in thousands)
Balances, December 31, 2018			190,000			$	11.25				4.9			$	90.0
Options canceled and retired			—				—
Options exercised			—				—
Options granted			112,500				12.50
Balances, December 31, 2019			302,500				11.71				5.9				313.4
Options canceled and retired			—				—
Options exercised			—				—
Options granted			60,000				16.29
Balances, December 31, 2020			362,500				12.47				5.6				810.1
Options vested and exercisable and expected to be vested and exercisable at December 31, 2020			362,500			$	12.47				5.6			$	810.1
Options vested and exercisable at December 31, 2020			158,750			$	12.11				5.6			$	362.1

 

At December 31, 2020, there were 1.2 million shares reserved for issuance under the 2010 Stock Incentive Plan, and the Company had $0.4 million of total unrecognized stock option expense, net of estimated forfeitures, which will be recognized over the weighted average remaining period of 1.3 years.

 

The following table summarizes significant ranges of outstanding and exercisable options as of December 31, 2020:

Exercise Prices				Number Outstanding				Weighted   Average Remaining   Contractual Life (in Years)				Weighted   Average Exercise Price Per Share				Number Exercisable				Weighted Average Exercise Price Per  Share
	8.30				75,000				1.4			$	8.30				18,750			$	8.30
	9.61				15,000				5.5				9.61				15,000				9.61
	12.50				75,000				8.1				12.50				50,000				12.50
	12.50				37,500				8.4				12.50				25,000				12.50
	13.70				100,000				3.6				13.70				50,000				13.70
	16.29				15,000				9.4				16.29				—				16.29
	16.29				15,000				9.5				16.29				—				16.29
	16.29				30,000				9.3				16.29				—				16.29
	Total				362,500				5.6			$	12.47				158,750			$	12.11

 

Employee stock-based compensation expense recognized for time-vesting options for the years ended December 31, 2020 and 2019, uses the Black-Scholes option pricing model for estimating the fair value of options granted under the Company’s equity incentive plans. Risk-free interest rates for the options were taken from the Daily Federal Yield Curve Rates on the grant dates for the expected life of the options as published by the Federal Reserve. The expected volatility was based upon historical data and other relevant factors such as the Company’s changes in historical volatility and its capital structure, in addition to mean reversion. Employee stock-based compensation expense recognized for market performance-vesting options uses a binomial lattice model for estimating the fair value of options granted under the Company’s equity incentive plan.

 

In calculating the expected life of stock options, the Company determines the amount of time from grant date to exercise date for exercised options and adjusts this number for the expected time to exercise for unexercised options. The expected time to exercise for unexercised options is calculated from grant as the midpoint between the expiration date of the option and the later of the measurement date or the vesting date. In developing the expected life assumption, all amounts of time are weighted by the number of underlying options.

 

During the year ended December 31, 2020, 8,305 restricted shares were granted and 37,989 restricted shares vested. During the year ended December 31, 2019, 57,155 restricted shares were granted and 12,500 restricted shares vested. As of December 31, 2020 and 2019, there were 27,471 and 44,655 shares of restricted stock outstanding.

 

In October 2019, the Board approved a change in the compensation plan for non-employee directors such that each non-employee director shall receive an annual cash retainer of $45,000 payable quarterly in arrears and an annual equity retainer of $25,000 payable in advance annually on October 1 of restricted shares of the Company’s common stock, subject to a one year cliff vesting period. In addition, each member of (i) the Audit Committee shall receive an additional fee of $11,000 payable quarterly in arrears; (ii) the Compensation Committee shall receive an additional fee of $2,000 payable quarterly in arrears and (iii) the Governance Committee shall receive an additional fee of $4,000 payable quarterly in arrears. Each non-employee director has the option to elect to receive up to 100 percent of the annual cash retainer in shares of the Company’s common stock.

 

During the years ended December 31, 2020 and 2019, the Board approved compensation for Board services by granting 24,940 and 25,574 shares, respectively, of common stock as compensation for the non-employee directors. The Company recorded $0.3 million and $0.2 million in Board compensation expense during the years ended December 31, 2020 and 2019, respectively. The Company recorded aggregate stock-based compensation expense, including the quarterly and annual Board grants, of $0.7 million and $0.5 million for the years ended December 31, 2020 and 2019, respectively.