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STOCK-BASED COMPENSATION
9 Months Ended
Sep. 30, 2023
Share-Based Payment Arrangement [Abstract]  
STOCK-BASED COMPENSATION

NOTE 11—STOCK-BASED COMPENSATION

 

2019 Equity Incentive Plan

 

On June 5, 2019, our Board of Directors adopted, and our stockholders approved, an equity-based incentive plan (the “2019 Equity Incentive Plan”), which authorized equity awards to be granted for up to 1,976,264 shares of our common stock. Under the 2019 Equity Incentive Plan, the exercise price of awards would be set on the grant date and could not be less than the fair market value per share on such date, however, that in the case of an incentive stock option granted to an employee who, at the time of the grant of such option, owned stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or the Company’s present or future parent or subsidiary corporations, as defined in Section 424(e) or (f) of the Code, or other Affiliates the employees of which were eligible to receive incentive stock options under the Code (the “10% Shareholders”), the exercise price per share would be no less than one hundred ten percent (110%) of the fair market value per share on the date of grant. The fair market value would be the closing price of the shares on Nasdaq on the date of grant.

 

On July 17, 2019, stock options providing the right to purchase up to 1,165,000 shares were granted under the 2019 Equity Incentive Plan with an exercise price equal to the market price of our common stock at the grant date. These stock options had a vesting period of 3 years with 1/3 vesting immediately on the grant date, 1/3 vesting on July 17, 2020, and the remaining 1/3 vesting on July 17, 2021.

 

Cancellation of Stock Option Awards Under 2019 Equity Incentive Plan

 

On April 28, 2020, all stock option awards granted under the 2019 Equity Incentive Plan were canceled for no payment pursuant to an option cancellation agreement (the “Option Cancellation Agreement”). As a result, there are no stock option awards outstanding under the 2019 Equity Incentive Plan. In accordance with FASB ASC 718, Compensation Stock Compensation (“ASC 718”) all unrecognized compensation cost related to still unvested shares was recognized as of the date of cancellation. For more information, including a description of the Option Cancellation Agreement, please refer to our current report on Form 8-K filed with the SEC on April 29, 2020. Such description of the Option Cancellation Agreement is qualified in its entirety by reference to the text of such Option Cancellation Agreement filed as Exhibit 10.3 to our quarterly report on Form 10-Q for the period ended March 31, 2020 filed with the SEC on May 8, 2020.

 

The Company follows ASC 718 to account for stock options granted. Under ASC 718, compensation expense associated with stock-based compensation is measured at the grant date based on the fair value of the award and is recognized over the vesting period. Determining the appropriate fair value model and calculating the fair value of stock-based awards at the grant date requires judgment, including estimating stock price volatility, forfeiture rate, and expected option life. The time-based options granted on July 17, 2019 were ascribed a weighted-average fair value of $2.57 per share. The fair value of options granted under the 2019 Equity Incentive Plan was based upon a Black Scholes option pricing model using the assumptions in the following table:

 

 

     
Input Assumptions  As of July 17, 2019 Grant Date 
Term (years)   5.55 
Volatility   39.47%
Risk-free rate   1.86%
Dividend yield   %

 

 

   Number of Shares  

Weighted-Average

Exercise Price

  

Weighted-Average

Grant Date Fair Value

 
Outstanding as of December 31, 2019   1,155,000   $6.57   $2.57 
Vested and Exercisable as of December 31, 2019   385,000   $6.57   $2.57 
Cancelled  (1,155,000)  $6.57   $2.57 
Outstanding as of September 30, 2023 and December 31, 2022       -    - 

 

 

SURO CAPITAL CORP. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

 

As of September 30, 2023 and December 31, 2022, there was $0 of total unrecognized compensation cost related to non-vested stock options granted under the 2019 Equity Incentive Plan, as the options were cancelled effective April 28, 2020.

 

Amended and Restated 2019 Equity Incentive Plan

 

On June 19, 2020, our Board of Directors adopted, and our stockholders approved, an amendment and restatement of the Company’s 2019 Equity Incentive Plan (the “Amended & Restated 2019 Equity Incentive Plan”) under which the Company is authorized to grant equity awards for up to 1,627,967 shares of its common stock. In accordance with the exemptive relief granted to the Company by the SEC on June 16, 2020 with respect to the Amended & Restated 2019 Equity Incentive Plan, the Company is generally authorized to (i) issue restricted shares as part of the compensation package for certain of its employees, officers and all directors, including non-employee directors (collectively, the “Participants”), (ii) issue options to acquire shares of its common stock (“Options”) to certain employees, officers and employee directors as a part of such compensation packages, (iii) withhold shares of the Company’s common stock or purchase shares of common stock from the Participants to satisfy tax withholding obligations relating to the vesting of restricted shares or the exercise of Options granted to the certain Participants pursuant to the Amended & Restated 2019 Equity Incentive Plan, and (iv) permit the Participants to pay the exercise price of Options granted to them with shares of the Company’s common stock.

 

Under the Amended & Restated 2019 Equity Incentive Plan, each non-employee director will receive an annual grant of $50,000 worth of restricted shares of common stock (based on the closing stock price of the common stock on the grant date). Each grant of $50,000 in restricted shares will vest, in full, if the non-employee director is in continuous service as a director of the Company through the anniversary of such grant (or, if earlier, the annual meeting of the Company’s stockholders that is closest to the anniversary of such grant). During the nine months ended September 30, 2023, the Company granted 60,060 restricted shares to the Company’s non-employee directors pursuant to the Amended & Restated 2019 Equity Incentive Plan. Additionally, on May 31, 2023, 26,736 restricted shares related to the 2022 non-employee director grants vested. Compensation expense associated with the restricted shares is recognized on a quarterly basis over the respective vesting periods.

 

Other than such restricted shares granted to non-employee directors, the Company’s Compensation Committee may determine the time or times at which Options and restricted shares granted to other Participants will vest or become payable or exercisable, as applicable. The exercise price of each Option will not be less than 100% of the fair market value of the Company’s common stock on the date the option is granted. However, any optionee who owns more than 10% of the combined voting power of all classes of the Company’s outstanding common stock (a “10% Stockholder”), will not be eligible for the grant of an incentive stock option unless the exercise price of the incentive stock option is at least 110% of the fair market value of the Company’s common stock on the date of grant. Generally, no Option will be exercisable after the expiration of ten years from the date of grant. In the case of an Option granted to a 10% Stockholder, the term of an incentive stock option will be for no more than five years from the date of grant.

 

During the nine months ended September 30, 2023, the Company did not grant any restricted shares to the Company’s officers pursuant to the Amended & Restated 2019 Equity Incentive Plan. The Company determined that the fair values, based on the grant date close price of such restricted shares granted to the Company’s officers under the Amended & Restated 2019 Equity Incentive Plan during the nine months ended September 30, 2023 and 2022 were approximately $0 and $2,885,000, respectively, in the aggregate.

 

For the three and nine months ended September 30, 2023, the Company recognized stock-based compensation expense of $774,978 and $2,300,237, respectively. For the three and nine months ended September 30, 2022, the Company recognized stock-based compensation expense of $831,977 and $1,976,695, respectively. As of September 30, 2023 and December 31, 2022, there were approximately $4,351,373 and $6,451,610 of total unrecognized compensation costs related to the restricted share grants. Compensation expense associated with the restricted shares is recognized on a quarterly basis over the respective vesting periods.

 

 

SURO CAPITAL CORP. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

 

The following table summarizes the activities for the Company’s restricted share grants for the nine months ended September 30, 2023 under the Amended & Restated 2019 Equity Incentive Plan:

 

 

   Number of Restricted Shares 
Outstanding as of December 31, 2022   606,620 
Granted   60,060 
Vested(1)   (176,780)
Forfeited    
Outstanding as of September 30, 2023   489,900 
Vested as of September 30, 2023   347,580 

 

 

(1)The balance of vested shares reflects the total shares vested during the period and has not been reduced for those vested shares forfeited at time of vest related to net share settlement.

 

The Amended & Restated 2019 Equity Incentive Plan provides for the concept of “net share settlement.” Specifically, it provides that the Company is authorized to withhold the Common Stock at the time the restricted shares are vested and taxed in satisfaction of the Participant’s tax obligations. On June 16, 2020, the Company received exemptive relief from the SEC to permit such withholding of shares.