Related Party Transactions |
9 Months Ended |
|---|---|
Sep. 30, 2016 | |
| Related Party Transactions [Abstract] | |
| Related Party Transactions |
Related Party Transactions
Loan Agreement
On February 24, 2016, the Company entered into a loan agreement (the “Loan Agreement”) with a third party that provides in-flight entertainment systems to airlines (the "Loan Party"). The Loan Party is majority-owned by PAR Investment Partners, L.P., or PAR, which beneficially owned approximately 34.0% of the Company's outstanding shares of common stock as of September 30, 2016. The Chairman of the Company's Board of Directors is also a Managing Partner of PAR and a member of the board of directors of the Loan Party.
The Loan Agreement provides for extensions of credit by the Company to the Loan Party of up to $5.0 million. The Company's Board of Directors considered the Loan Agreement under the Company’s policies and procedures regarding related person transactions, and determined that it was appropriate and in the best interests of the Company and its stockholders to enter into the Loan Agreement due to the Loan Party’s position as a supplier to flydubai, a Connectivity customer of the Company, and the Loan Party’s future business prospects. Our Board of Directors further determined that the parties’ relationships did not give rise to any material conflict of interest in entering into the Loan Agreement.
The Loan Agreement qualifies the Loan Party as a variable interest entity to the Company. In accordance with ASC 810, Consolidation, the Company was not deemed to be the primary beneficiary of the Loan Party as the Company does not hold any power over the Loan Party's activities that most significantly impact its economic performance. Therefore, the Loan Party is not subject to consolidation. The maximum exposure to loss as a result of the Loan Agreement is the outstanding principal balance and any accrued interest thereon.
The borrowings under the Loan Agreement are evidenced by a senior secured promissory note (the "Note") and bear interest at a per annum rate of 15%. The outstanding principal and accrued interest thereon are payable in full on December 31, 2016. As of September 30, 2016, the outstanding principal balance of the loan was $4.5 million, inclusive of a $0.1 million origination fee. As a result of information provided by the Loan Party in June 2016, the Company impaired the Note during the three months ended June 30, 2016 and wrote off the outstanding principal balance of the Note and accrued interest receivable. Accrued interest receivable under the Note as of June 30, 2016 was approximately $0.2 million and the Company discontinued accruing interest receivable at such time.
WMS
In connection with the EMC Acquisition, the Company acquired a 49% equity interest in WMS. The Company accounts for its interest in WMS using the equity method and includes its share of WMS' profits or losses in Income from Equity Affiliates in the Condensed Consolidated Statements of Operations. As of September 30, 2016, the Company was owed $0.1 million from WMS.
Santander
Also in connection with the EMC Acquisition, the Company acquired a 49% equity interest in Santander. The Company accounts for its interest in Santander using the equity method and include its share of Santander's profits or losses in Income from Equity Affiliates in the Condensed Consolidated Statements of Operations. As of September 30, 2016, the Company owed Santander $0.1 million.
Abel Avellan
In connection with the EMC Acquisition, the Company appointed Abel Avellan (formerly EMC's Founder and CEO) as the Company's President and Chief Strategy Officer. The Company, through EMC, simultaneously entered into a Services Agreement ("Services Agreement") with STMEA, a Sharjah (United Arab Emirates) Free Zone company and a wholly-owned subsidiary of Trio Connect, LLC ("Trio"), which is owned by ABRY (former EMC owner), Mr. Avellan and other equity holders not affiliated with the Company. Mr. Avellan owns an approximately 7.5% equity interest in Trio. Under the Services Agreement, certain of our future employees are temporarily employed by a wholly-owned Trio entity and will be transferred to a wholly-owned Company subsidiary in the United Arab Emirates, which we expect to be fully operational in the fourth quarter of 2016. The monthly cost for these employees is approximately $191,000. We expect the Services Agreement to terminate in the fourth quarter of 2016 when the employees transition to our new wholly-owned subsidiary.
Subscription Receivable with Employee
The Company has an agreement with a former officer of Row 44 to stock-settle his note receivable and accrued interest, which amounted to $0.5 million, in exchange for certain shares of the Company's common stock held by the former officer. As of September 30, 2016 and December 31, 2015, the balance of the former officer’s receivable amounted to $0.5 million and is presented as subscriptions receivable. The Company recognizes interest income when earned, using the simple interest method. Interest amounts recognized by the Company during the three and nine months ended September 30, 2016 and September 30, 2015 were not material. The Company makes ongoing assessments regarding the collectability of the notes receivable and subscriptions receivable balances.
Administrative Services
One of the Company's subsidiaries rents office space belonging to a company in which a former member of such subsidiary's management had an ownership interest. The former member of management sold his interest in the office during the third quarter of 2015. There were no unpaid lease liabilities as of September 30, 2016 and December 31, 2015. The Company recognized rent expense of $30,000 and $0.2 million for the three and nine months ended September 30, 2016 and $60,000 and $0.2 million for the three and nine months ended September 30, 2015, respectively.
Office Lease Agreement with Employee
In connection with the acquisition of substantially all of the assets of Post Modern Edit, LLC and related entities ("PMG") in 2013, the Company acquired an office lease in a building that is currently being occupied and used as part of operations in Irvine, California. This building is majority-owned by one of the founding members of PMG, who was an employee of the Company through March 2015. The lease terminates on March 31, 2024. The total rental expense incurred during the three and nine months ended September 30, 2016 was $0.1 million and $0.2 million and $0.1 million for the three and nine months ended September 30, 2015, respectively.
masFlight Earn-Out
In August 2015, the Company acquired masFlight for approximately $10.3 million in cash and $9.3 million in contingent consideration. A former executive of masFlight is now an executive officer of the Company. As a portion of the contingent consideration is subject to future employment of certain employees of masFlight, certain contingent consideration is recorded as compensation expense prospective to the acquisition date. During the three months ended September 30, 2016, the Company recognized compensation expense of $0.3 million relating to the masFlight contingent consideration. As of September 30, 2016, the earn-out compensation liability was $0.5 million, the beneficiaries of which include a current executive officer of the Company who was formerly employed by masFlight.
AIA Earn-Out
The Company recognized an expense of $1.4 million during the year ended December 31, 2014 as a result of the
remeasurement of the fair value of the earn-out liability acquired in the AIA stock acquisition. The earn-out was payable to one of the former managing directors at Entertainment in Motion, a wholly owned subsidiary. The earn-out liability was paid and fully settled during the year ended December 31, 2015. As of September 30, 2016, there was no outstanding balance owed on this earn-out.
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