Drive Shack Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

EQUITY AND EARNINGS PER SHARE (Tables)

EQUITY AND EARNINGS PER SHARE (Tables)

12 Months Ended

Dec. 31, 2021

Schedule of amounts used in computing basic and diluted EPS

The Company is required to present both basic and diluted earnings per share (“EPS”). The following table shows the amounts used in computing basic and diluted EPS:


	For Year Ended December 31,
	2021		2020		2019
Numerator for basic and diluted earnings per share:
Loss from continuing operations after preferred dividends	$	(36,949)	$	(61,934)	$	(60,434)
Loss Applicable to Common Stockholders	$	(36,949)	$	(61,934)	$	(60,434)

Denominator:
Denominator for basic earnings per share - weighted average shares	89,733,378		67,158,745		67,039,556
Effect of dilutive securities
Options	—		—		—
RSUs	—		—		—
Denominator for diluted earnings per share - adjusted weighted average shares	89,733,378		67,158,745		67,039,556

Basic earnings per share:
Loss from continuing operations per share of common stock after preferred dividends	$	(0.41)	$	(0.92)	$	(0.90)
Loss Applicable to Common Stock, per share	$	(0.41)	$	(0.92)	$	(0.90)

Diluted earnings per share:
Loss from continuing operations per share of common stock after preferred dividends	$	(0.41)	$	(0.92)	$	(0.90)
Loss Applicable to Common Stock, per share	$	(0.41)	$	(0.92)	$	(0.90)

Schedule of outstanding options

The following is a summary of the changes in the Company's outstanding options for the year ended December 31, 2021.


	Number of Options	Weighted Average Strike Price		Weighted Average Life Remaining (in years)
Balance at December 31, 2020	4,935,732	$	2.57

Vested	(1,353,184)	1.00

Balance at December 31, 2021	3,582,548	$	3.17	1.6 years

Outstanding at December 31, 2021	2,578,926	$	2.59	1.7 years

Schedule of outstanding options summary

The Company's outstanding options are summarized as follows:


	Year Ended December 31,
	2021	2020
Held by the former Manager	2,578,926	3,627,245
Granted to the former Manager and subsequently transferred to certain Manager’s employees (B)	1,003,622	1,308,154
Granted to the independent directors	—	333
Granted to Drive Shack employees (A)(C)	—	—
Total	3,582,548	4,935,732

(A)In 2019, in connection with the former CEO's retirement, the related option awards were modified to accelerate the vesting of 1,117,118 options, subject to a 90-day exercise period which was not exercised and expired on February 9, 2020. The former CEO forfeited 2,234,237 options upon departure. As a result of the modification, the Company reversed $2.1 million in stock compensation expense. The expense for the modified award was recorded at the modification date fair value.

(B)The Company and Fortress (the former Manager) agreed that options held by certain employees formerly employed by the Manager will not terminate or be forfeited as a result of the Termination and Cooperation Agreement, and the vesting of such options will relate to the relevant holder’s employment with the Company and its affiliates following January 1, 2018. In both February 2017 and April 2018, the former Manager issued 1,152,495 options to certain employees formerly employed by the Manager as part of their compensation. The options fully vest and are exercisable one year prior to the option expiration date, beginning March 2020 through January 2024. In 2019, a certain employee was terminated by the Company and 921,992 options reverted back to the former Manager. The Company reversed $1.2 million in stock compensation expense related to these options.

(C)In 2018, the Company granted 75,000 options to an employee as provided in their employment agreement. The options fully vest on the third anniversary of the grant date. In 2019, the Company granted 695,652 options to an employee that vest and become exercisable in equal annual installment on each of the first three anniversaries of the grant date. In 2021, no options were cancelled as part of an employee's departure from the Company per a separation and release agreement.

Schedule of assumptions for fair value of options

The fair value of the options was determined using the following assumptions:


Option Valuation Date	April 2019			November 2019
Expected Volatility	36.80		%	44.73		%
Expected Dividend Yield	0.00		%	0.00		%
Expected Remaining Term	6.0 years			0.3 years
Risk-Free Rate	2.34		%	1.57		%
Fair Value at Valuation Date	$	1,280		$	67

Summary of changes in RSUs

The following is a summary of the changes in the Company's RSUs for the year ended December 31, 2021:


	Number of RSUs	Weighted Average Grant Date Fair Value (per unit)
Balance at December 31, 2020	259,238	$	3.72
Granted (A)	149,660	$	1.47
Released	(162,706)	$	3.45
Forfeited (B)	(53,002)	$	3.74
Outstanding at December 31, 2021	193,190	$	2.20

(A)The Company's non-employee directors were granted 149,660 RSUs during 2021 as part of the annual compensation. The RSUs are subject to a one year vesting period.

(B)Unvested RSUs are forfeited by non-employee directors upon their departure from the board of directors and forfeited by employees upon their termination.