Note 11 - Share-based Compensation

12 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

11. SHARE-BASED COMPENSATION

Amazon Warrant

On January 23, 2018, Startek entered into the Amazon Transaction Agreement, pursuant to which we agreed to issue to Amazon.com NV Investment Holdings LLC, a wholly owned subsidiary of Amazon (“NV Investment”), a warrant (the “Warrant”) to acquire up to 4,000,000 shares (the “Warrant Shares”) of our common stock, par value $0.01 per share (“Common Stock”), subject to certain vesting events. As a result of an anti-dilution adjustment that was triggered by the 2019 Equity Offering, total number of shares issuable to Amazon have been adjusted from 4,000,000 to 4,002,964. We entered into the Amazon Transaction Agreement in connection with commercial arrangements between us and any of our affiliates and Amazon and/or any of its affiliates pursuant to which we and any of our affiliates provide and will continue to provide commercial services to Amazon and/or any of its affiliates. The vesting of the Warrant shares, described below, is linked to payments made by Amazon or its affiliates (directly or indirectly through third parties) pursuant to the commercial arrangements.

The first tranche of 425,532 Warrant Shares vested upon the execution of the Amazon Transaction Agreement. The remainder of the Warrant Shares will vest in various tranches based on Amazon’s payment of up to $600 million to us or any of our affiliates in connection with the receipt by Amazon or any of its affiliates of commercial services from us or any of our affiliates. The exercise price for all Warrant Shares was originally $9.96 per share but was adjusted to $9.95 per share as a result of an anti-dilution adjustment that was triggered by the 2019 Equity Offering. The Warrant Shares are exercisable through January 23, 2026.

The second tranche of 212,766 Warrant Shares vested on May 31, 2019. The amount of contra revenue attributed to these Warrant Shares is $730. The contra-revenue and equity is estimated and recorded, using the Monte Carlo pricing model, when performance completion is probable, with adjustments in each reporting period until performance is complete in conformance with the requirements in ASC 606 and ASC 718. As per ASC 606 we have additionally accrued $565 for the period ended December 31,2019.

The Warrant provides for net share settlement that, if elected by the holders, will reduce the number of shares issued upon exercise to reflect net settlement of the exercise price. The Warrant provides for certain adjustments that may be made to the exercise price and the number of shares of common stock issuable upon exercise due to customary anti-dilution provisions based on future events. Vested Warrant Shares are classified as equity instruments.

Because the Warrant contains performance criteria (i.e. aggregate purchase levels) which Amazon and/or any of its affiliates must achieve for the Warrant Shares to vest, as detailed above, the final measurement date for each tranche of the Warrant Shares is the date on which performance is completed. Prior to the final measurement date, when achievement of the performance criteria has been deemed probable, a reduction in revenue equal to the percentage of completion to date will be recognized in accordance with ASC 606. The fair value of the Warrant Shares will be adjusted at each reporting period until they are earned.

Share-based compensation

In connection with the Aegis Transactions, the Company maintained Startek's 2008 Equity Incentive Plan (the “Plan”), which reserved 900,000 shares of common stock for issuance pursuant to the terms of the Plan plus 274,298 shares that remained available for future issuance under prior plans on the effective date of the Plan, which was May 5, 2008. An Amended and Restated Plan was approved by our board of directors and stockholders at our annual meeting of stockholders in May 2014, which authorized an additional 500,000 shares of common stock for issuance. At our annual meeting of stockholders in June 2016 and May 2019, the board of directors and stockholders authorized another 250,000 and 300,000  shares of common stock for issuance respectively, under the Amended and Restated Plan. As of December 31, 2019, there were 478,638 shares available for future grant under the Plan. Our plan is administered by the Compensation Committee (the "Committee") of the Board of Directors. The types of awards that may be granted under the Plan include stock options, stock appreciation rights, restricted stock, restricted stock units, performance units or other stock-based awards.  The terms of the awards granted under the Plan will expire no later than ten years from the grant date. The Committee determines the vesting conditions of awards; however, subject to certain exceptions, an award that is not subject to the satisfaction of performance measures may not fully vest or become fully exercisable earlier than three years from the grant date, and the performance period for an award subject to performance measures may not be shorter than one year.

At the beginning of each quarter, members of the board of directors, at their option, may elect to receive as compensation 1) stock options to purchase shares of common stock with a fair value equivalent of $22,500 (calculated using the Black-Scholes pricing model), 2) shares of common stock with a grant date fair value of $22,500, 3) deferred stock units with a fair value equivalent of $22,500 (calculated using the Black-Scholes pricing model), with ownership of the common stock vesting immediately or over a period determined by the Committee and stated in the award or 4) any combination of options and common stock. Upon the date of grant, the members of the board of directors are immediately vested in the stock options or common stock.

Stock options

A summary of stock option activity under the Plan is as follows: 

	Shares			Weighted Average Exercise Price		Weighted-Average Remaining Contractual Term (in yrs)
Outstanding as of December 31, 2018		2,868,947			5.35
Granted		118,266			7.23
Exercised		(318,548	)		4.15
Forfeited		(40,000	)		7.18
Outstanding as of December 31, 2019		2,628,665			5.55		5.11
Vested and exercisable as of December 31, 2019		2,288,000			5.36		4.60

The weighted-average grant date fair value of options granted was $4.57 and $4.64 during 2019 and the period starting from July 21, 2018 to December 31, 2018. The total fair value of shares vested was $1,560 and $845 during 2019 and the period starting from July 21, 2018 to December 31, 2018.

The assumptions used to determine the value of our stock-based awards under the Black-Scholes method are summarized below:

	January 01, 2019 to December 31, 2019			From July 21, 2018 to December 31, 2018
Risk-free interest rate		1.65% - 2.66%			3.09	%
Dividend yield		-	%		-	%
Expected volatility		48.66% - 56.91%			61.92	%
Expected life in years		10			10

The risk-free interest rate is based on the U.S. Treasury strip yield in effect at the time of grant with a term equal to the expected term of the stock option granted. Average expected life and volatilities are based on historical experience, which we believe will be indicative of future experience.

Deferred Stock Units

Pursuant to the board of directors' compensation program, deferred stock units of  3,494 were granted to members of the board of directors for the period starting from July 21, 2018 to December 31, 2018. The total fair value of deferred stock units granted during the period starting from July 21, 2018 to December 31, 2018, was $23. Deferred stock units are fully vested upon issuance and are settled in shares of common stock upon the director’s termination of service. The fair value of stock grants and deferred stock units is calculated based on the closing price of our common stock on the date of grant.

Share-based Compensation Expense

The compensation expense that has been charged against income during year ended December 31 2019 and the period starting from July 21, 2018 to December 31, 2018 was $1,516 and $674, respectively and is included in selling, general and administrative expense. As of December 31, 2019, there was $1,163 of total unrecognized compensation expense related to nonvested stock options, which is expected to be recognized over a weighted-average period of 1.55 years.

Employee Stock Purchase Plan

In connection with the Aegis Transactions, the Company maintained Startek's employee stock purchase plan ("ESPP"). Under the terms of our ESPP, eligible employees may authorize payroll deductions up to 10% of their base pay to purchase shares of our common stock at a price equal to 85% of the lower of the closing price at the beginning or end of each quarterly stock purchase period. A total of 400,000 shares were authorized under the original ESPP Plan; an Amended and Restated Plan was approved by our board of directors and stockholders at our annual meeting of stockholders in June 2016 and May 2019, which authorized an additional 100,000 and 150,000 shares of common stock for issuance. As of December 31, 2019, 136,828 shares were available for issuance.

During year ended December 31 2019 and period starting from July 21, 2018 to December 31, 2018, 34,027 shares and 21,076 shares were purchased under this plan at an average price of $6.08 and $5.51, respectively. Total expense recognized related to the ESPP during 2019 and the period starting from July 21, 2018 to December 31, 2018 was $50 and $37. The assumptions used to value the shares under the ESPP using the Black-Scholes method were as follows:

	January 01, 2019 to December 31, 2019			From July 21, 2018 to December 31, 2018
Risk-free interest rate		1.54% - 2.49%			2.66% - 2.87%
Dividend yield		-	%		-	%
Expected volatility		36.73% - 53.11%			56.91% - 61.92%
Expected life in years		3 months			3 months

The weighted average grant date fair value of these shares was $1.46 and $1.74 per share during year ended December 31, 2019 and the period starting from July 21, 2018 to December 31, 2018.

401(k) Plan

We have a safe harbor 401(k) plan that allows participation by all eligible employees as of the first day of the month following their hire date. Eligible employees may contribute up to the maximum limit determined by the Internal Revenue Code. Participants receive a matching contribution after completing one year of service. We match 100% of the participant’s contribution for the first 3% and 50% of the participant’s contribution for the next 2%. Company matching contributions to the 401(k) plan totaled $502 and $220 during year ended December 31, 2019 and period starting from July 21, 2018 to December 31, 2018 respectively.

Philippines Pension Plan

The Company sponsors a non-contributory defined benefit pension plan (the “Pension Plan”) for its covered employees in the Philippines. The Pension Plan provides defined benefits based on years of service and final salary.

All permanent employees meeting the minimum service requirement are eligible to participate in the Pension Plan. Remeasurement changes are reflected in Accumulated Other Comprehensive Income (AOCI). As of December 31, 2019, the Pension Plan was unfunded. The Company doesn't expect to make any cash contributions to the Pension Plan. As of December 31, 2019, the defined benefit obligation of $141 was included in other long term liabilities in the Consolidated Balance Sheets.

Gratuity and other post-employment benefit plans

The Company has classified various employee benefits as under:

a)    Defined contribution plans

Contributions to defined contribution plans are charged to the consolidated statement of operations in the period in which services are rendered by the covered employees. The Company contributed the following amounts to defined contribution plans in various jurisdictions for given period:

Particulars	Year Ended December 31, 2019		Nine months ended December 31, 2018
Contribution to defined contribution plans		14,230		10,125

b)    Defined benefit plans

Gratuity Plan (Unfunded)

In accordance with applicable local laws, the Company provides for gratuity, a defined benefit retirement plan (Gratuity Plan) covering certain categories of employees in India and Saudi. The Gratuity Plan provides a lump-sum payment to vested employees, at retirement or termination of employment, an amount based on the respective employee’s last drawn salary and the years of employment with the Company. The Gratuity Plan benefit cost for the year is calculated on an actuarial basis. The following table sets forth amounts of obligation recognised in financial statements based on acturial valuations carried out as of December 31, 2019 and 2018:

Particulars	December 31, 2019		December 31, 2018
(a) Liability recognized in consolidated balance sheet
Liability at the end of the year		13,888		12,382
(b) Current/Non current liability
Current liability		4,123		2,957
Non current liability		9,765		9,425

c)   Compensated absences

The Company’s liability for compensated absences is determined based upon local laws/Company policy. The Company establishes the liability based upon the employee’s last salary.