Quarterly report pursuant to Section 13 or 15(d)

Common Stock, Share-based Awards and Warrants

v3.5.0.2
Common Stock, Share-based Awards and Warrants
 9 Months Ended
Sep. 30, 2016
Equity [Abstract]  
Common Stock, Share-based Awards and Warrants
Common Stock, Share-based Awards and Warrants    

Common Stock

Issuance of Common Stock

During the three months ended September 30, 2016, the Company issued approximately 5.5 million shares of its common stock in connection with the EMC Acquisition. Additionally, the Company issued approximately 1.8 million shares of its common stock as partial consideration for the settlement of sound-recording litigation. The Company is obligated to issue an additional 0.5 million shares of its common stock in connection with the sound-recording litigation if the share price of the Company's common stock exceeds $10 per share and an additional 0.4 million shares of its common stock if the closing price exceeds $12 per share (together, the "Supplemental Shares"). In lieu of issuing the Supplemental Shares of the Company's common stock upon exceeding the respective share price thresholds, the Company may pay the equivalent in cash at its sole discretion. If the Company were to experience a liquidation event, as defined in the applicable agreement, and the equivalent liquidation price per share exceeds one or both of the share price thresholds, the Company is obligated to pay the equivalent liquidation price per share in cash in lieu of issuing the Supplemental Shares.

Stock Repurchase Program

In March 2016, the Company's Board of Directors (the "Board") authorized a stock repurchase program under which the Company may repurchase up to $50.0 million of its common stock. Under the stock repurchase program, the Company may repurchase shares from time to time using a variety of methods, which may include open-market purchases and privately negotiated transactions. The extent to which the Company repurchases its shares, and the timing and manner of such repurchases, will depend upon a variety of factors, including market conditions, regulatory requirements and other corporate considerations, as determined by management. The Company measures all potential buybacks against other potential uses of capital which may arise from time to time. The repurchase program does not obligate the Company to repurchase any specific number of shares, and may be suspended or discontinued at any time. The Company expects to finance any purchases with existing cash on hand, cash from operations and potential additional borrowings. During the three months ended June 30, 2016, the Company repurchased 0.6 million shares of its common stock for consideration of $5.2 million in the aggregate. During the three months ended September 30, 2016, the Company did not repurchase any common stock and, as of September 30, 2016, the remaining authorization under the stock repurchase plan was $44.8 million.
    
Share-based Awards

EMC Deferred Purchase Consideration and Employment Inducement Awards

As part of the purchase price for EMC, the Company is obligated to pay to the former owners, which include a current Company executive officer, an aggregate of $25.0 million of deferred consideration on July 27, 2017 in the form of cash or shares of our common stock, at the Company's election. If the Company elects to pay this obligation in shares of its common stock, the actual number of shares issued will be determined at the time of issuance with 50% of the shares to be valued at $8.40 per share and 50% of the shares to be valued based on the 20 trading day volume-weighted average price per share of the Company's common stock, measured as of July 25, 2017 (two days prior to the first anniversary of the EMC Acquisition).

In connection with the appointment of Mr. Avellan to the position as the Company's President and Chief Strategy Officer, the Company granted Mr. Avellan the following share-based awards: (i) non-qualified stock options to purchase 450,000 shares of the Company’s common stock (the “Option Award”), (ii) an award of 275,000 restricted stock units (the “Stock Award”), and (iii) 175,000 shares of fully-vested restricted stock.
The exercise price per share of the Option Award was equal to the closing price of the Company's stock on the EMC Acquisition Date. Each of the Option Award and the Stock Award will be subject to the terms and conditions applicable to such awards granted under the Company’s 2016 Inducement and Retention Stock Plan for EMC Employees (effective as of the date hereof as it may be amended from time to time, the "Inducement Equity Plan”). Subject to continued employment, one-third of the Option Awards will vest on July 27, 2017, with the remainder vesting monthly on a pro rata basis thereafter over the next two years until fully vested. Subject to continuous employment through each vesting date, the restricted stock units will vest in three equal annual installments, with the first installment vesting on July 27, 2017 and the remaining installments vesting annually thereafter. Both the Option Award and the Stock Award are subject to automatic vesting provisions in the event of a change in control as provided for under the terms of the employment agreement.

In addition, in connection with the EMC Acquisition, the Company granted eleven other EMC employees, in the aggregate, nonqualified stock options to purchase 70,700 shares of the Company's common stock and 71,950 restricted stock units as employment inducement awards. The exercise price per share of the nonqualified stock options was equal to the closing price of the Company's stock on the EMC Acquisition Date. The options are subject to continuous employment and will vest with respect to one-fourth of the underlying shares on July 27, 2017, with the remainder vesting monthly on a pro rata basis thereafter over the next three years until fully vested. Subject to continuous employment through each vesting date, the restricted stock units will vest in four equal installments, with the first installment vesting on July 27, 2017 and the remaining installments vesting annually thereafter.
    
Stock Options

Under the Company's 2013 Amended and Restated Equity Incentive Plan, (as amended, the "2013 Equity Plan"), the Administrator of the Plan, which is the compensation committee of the Company's Board of Directors, may grant up to 11,000,000 stock options, restricted stock, restricted stock units (RSUs) (including both time-vesting and performance-based RSUs) and other incentive awards to employees, officers, non-employee directors, and consultants, and such options or awards may be designated as incentive or non-qualified stock options at the discretion of the Administrator. The exercise price of stock option awards granted is generally equal to the per share closing price of the common stock on the date the options were granted. Stock option awards generally vest over one to four years, expire five to seven years from the date of grant and certain stock option and RSU awards have accelerated vesting provisions in the event of a change in control and certain termination provisions.

Fair values of the stock options as of September 30, 2016 and 2015 were determined using the Black-Scholes model and the following weighted average assumptions:

 
Nine Months Ended September 30,
 
2016
 
2015
Common stock price on grant date
$8.31
 
$12.9
Expected life (in years)
3.8

 
3.8

Risk-free interest rate
1.12
%
 
1.3
%
Expected stock volatility
44.0
%
 
43.0
%
Expected dividend yield
—
%
 
—
%
Fair value of stock options granted
$2.88
 
$4.41


Stock option activity for the nine months ended September 30, 2016 is as follows:

Global Eagle Stock Option Plan
Shares (in thousands)
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Term (in years)
 
Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2016
5,625

 
$
11.20

 

 


Granted
1,680

 
$
8.31

 

 
 
Exercised
(26
)
 
$
9.87

 

 
 
Forfeited
(562
)
 
$
11.42

 

 
 
Outstanding at September 30, 2016
6,717

 
$
10.46

 
2.78
 
$
580

Vested and expected to vest at September 30, 2016
6,041

 
$
10.54

 
2.79
 
$
415

Exercisable at September 30, 2016
3,562

 
$
10.82

 
2.04
 
$
—



Restricted Stock Units
    
Under the 2013 Equity Plan, our time-vesting RSU awards that can be granted to employees, officers and consultants vest annually on each anniversary of the grant date and generally over a 4-year term. RSUs granted to non-employee directors in 2016 and 2015 cliff-vest on the 13 month anniversary from the grant date. The grant date fair value of an RSU equals the closing price of the Company's common stock on the grant date.

The following summarizes select information regarding our RSUs during the nine months ended September 30, 2016:

 
Units (in thousands)
 
Weighted Average Grant Date Fair Value
 
Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2016
408

 
$
12.71

 
 
Granted
1,359

 
$
8.01

 
 
Vested
(87
)
 
$
12.79

 
 
Forfeited
(93
)
 
$
11.62

 
 
Balance nonvested at September 30, 2016
1,587

 
$
8.74

 
$
13,180

Vested and expected to vest at September 30, 2016
980

 
$
8.74

 
$
7,938



Stock-Based Compensation Expense

Stock-based compensation expense related to all employee and non-employee stock-based awards for the three and nine months ended September 30, 2016 and 2015 was as follows (in thousands):

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Stock-based compensation expense:
 
 
 
 
 
 
 
Cost of services
$
75

 
$
81

 
$
225

 
$
246

Sales and marketing expenses
150

 
177

 
429

 
540

Product development
250

 
262

 
743

 
771

General and administrative
3,324

 
1,627

 
6,664

 
4,691

Total stock-based compensation expense
$
3,799

 
$
2,147

 
$
8,061

 
$
6,248


    Warrants

The following is a summary of the "Legacy Row 44 Warrants" outstanding as of September 30, 2016. Our Legacy Row 44 Warrants are warrants issued by a legacy entity purchased as part of the business combination. The Legacy Row 44 Warrants were originally exercisable for shares of Row 44, but as a result of the business combination became exercisable for Company common stock.


Weighted Average Exercise Price per Warrant
 
Number of Warrants (as converted) (in thousands)
 
Weighted Average Remaining Life
(in years)
Legacy Row 44 Warrants (1)
$
8.79

 
690

 
0.00
Legacy Row 44 Warrants (2)
$
8.62

 
477

 
0.00

(1)
Originally issuable for Row 44 common stock, and now issuable for Company common stock.
(2)
Originally issuable for Row 44’s Series C preferred stock, and now issuable for Company common stock.
    
The following is a summary of Public SPAC Warrants outstanding as of September 30, 2016. There was no activity for the three months ended September 30, 2016.

Public SPAC Warrants
Number of Warrants (in thousands)
 
Weighted Average Exercise price
 
Weighted Average Remaining Contractual Term (in years)
Outstanding and exercisable at September 30, 2016
6,173

 
$
11.50

 
0.00


The Company accounted for its 6.2 million Public SPAC Warrants as derivative liabilities as September 30, 2016. During the three and nine months ended September 30, 2016 and September 30, 2015, the Company recorded income (loss) of approximately $1.2 million and $18.0 million, respectively, and $(1.9) million and $13.9 million, respectively, in the condensed consolidated statements of operations as a result of the remeasurement of these warrants. The fair value of warrants issued by the Company has been estimated using the warrants' quoted public market price. In the event the closing price of the Company's common stock is at or above $17.50 for twenty of thirty consecutive trading days, the Company can redeem the 6.2 million Public SPAC Warrants for $0.01 per warrant following a 30-day notice period, during which period holders may exercise their warrants at $11.50 per share, with estimated proceeds of approximately $71.0 million, unless we decide, at our option, to make them exercisable on a cashless basis.

Warrants Repurchase Program

During the year ended December 31, 2014, the Board authorized a warrant repurchase program of up to $25.0 million (inclusive of certain prior warrant purchases) for GEE’s Public SPAC Warrants. In August 2015, the Board authorized an additional $20.0 million to this repurchase program. As of September 30, 2016 and December 31, 2015, $16.7 million was available to repurchase GEE's Public SPAC Warrants under this authorization. The amount the Company spends and the number of warrants repurchased varies based on a variety of factors including the warrant price.