Related Party Transactions |
12 Months Ended |
|---|---|
Dec. 31, 2016 | |
| Related Party Transactions [Abstract] | |
| Related Party Transactions |
Related Party Transactions
Loan Agreement with Lumexis
On February 24, 2016, the Company entered into a loan agreement (the “Loan Agreement”) with Lumexis Corporation, a company that provided in-flight entertainment systems to airlines (“Lumexis”). Lumexis is majority-owned by PAR Investment Partners, L.P. (“PAR”), which beneficially owned approximately 34.5% and 37.5% of the Company’s outstanding shares of common stock as of December 31, 2016 and 2015, respectively. At the time the Company entered into the Loan Agreement, the Chair of the Company’s Board of Directors was also a Managing Partner of PAR and a member of Lumexis’ board of directors.
The Loan Agreement provided for extensions of credit by the Company to Lumexis 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 Lumexis’ position as an important supplier to flydubai, a Connectivity customer of the Company and to another airline that was a potential Connectivity customer, and in light of Lumexis’ future business prospects. The 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 Board Chair recused himself from discussions regarding the Loan Agreement and did not vote on whether the Company should enter into the transaction.
The Loan Agreement qualifies Lumexis 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 Lumexis as the Company does not hold any power over Lumexis’ activities that most significantly impact its economic performance. Therefore, Lumexis 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 were evidenced by a senior secured promissory note (the “Note”) and bore interest at a per annum rate of 15%. The outstanding principal and accrued interest thereon were payable in full on December 31, 2016. As a result of information provided by Lumexis, in June 2016 as to the note’s collectability and Lumexis’ insolvency, management impaired the value of Note during the three months ended June 30, 2016 and discontinued accruing interest receivable and wrote off the outstanding principal balance of the Note and accrued interest receivable of $0.2 million. As of December 31, 2016, the outstanding principal balance of the loan was $4.4 million, inclusive of a $0.1 million origination fee.
On December 5, 2016, the Company, Lumexis and PAR entered into a Partial Cancellation of Debt and Acceptance of Collateral, which provided a transfer of certain assets in the amount of $0.2 million to the Company in partial satisfaction of the Lumexis’ principal amount of the outstanding debt. The Company was the senior-most secured creditor of Lumexis and as such foreclosed on substantially all of its assets. On January 6, 2017, the Company acquired the remainder of Lumexis’ assets pursuant to a properly-noticed public foreclosure auction. The fair value of the acquired assets was $2.0 million. During the year ended December 31, 2016, the Company recognized an impairment loss related to the Lumexis loan and related accrued interest of $4.4 million included in Other expense, net, in the Consolidated Statements of Operations.
Due from 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 (loss) from equity method investments in the Consolidated Statement of Operations. During the period from the EMC Acquisition Date through December 31, 2016, the Company’s sales to WMS were approximately $0.7 million for the services provided for WMS’s onboard cellular equipment under the terms of the WMS operating agreement and an associated master services agreement. These sales are included in Revenue – Services in the Consolidated Statements of Operations. As of December 31, 2016, the Company had a due from WMS of $0.1 million included in Accounts receivable in the Consolidated Balance Sheets.
Due to 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 includes its share of Santander’s profits or losses in Income (loss) from equity method investments in the Consolidated Statement of Operations. During the period from the EMC Acquisition Date through December 31, 2016, the Company purchased approximately $1.3 million from Santander for their teleport services and related network operations support services. These costs are included in Cost of sales - Licensing and services in the Consolidated Statements of Operations. As of December 31, 2016, the Company owed Santander $0.8 million included in Accounts payable and accrued liabilities in the Consolidated Balance Sheets.
Transactions with TRIO Connect, LLC and its Affiliates
In July 2015, EMC divested its interest in TRIO Connect, LLC (“TRIO”), a joint venture formed to commercialize EMC’s ARABSAT Ka Band contract, such that TRIO is now owned by funds affiliated with ABRY Partners (former EMC majority owner and current significant Company stockholder), Abel Avellan (the Company’s former President and Chief Strategy Officer) and other equity holders not affiliated with the Company. GEE did not acquire the TRIO business as a part of the EMC Acquisition.
Prior to the EMC Acquisition, EMC and its subsidiaries had collectively made various loans to TRIO and its affiliated entities in an aggregate principal of approximately $5.7 million. Also, prior to the EMC Acquisition, STMEA (FZE), a wholly-owned subsidiary of TRIO, had made equipment sales and provided employee payroll services to EMC and its subsidiaries in an aggregate amount equal to approximately $4.9 million. After applying the trade payables against the outstanding loan amounts, TRIO and its affiliates collectively owed EMC and its subsidiaries approximately $0.8 million in July 2016. Due to the deterioration of TRIO’s financial condition, EMC determined the remaining balance as uncollectible and fully impaired the value of the loan receivable prior to the Company’s acquisition of EMC in July 2016. The Company did not pay any consideration for the loan receivable in the EMC Acquisition, although it acquired the note in the EMC Acquisition. The Company believes that the receivable is now uncollectible, and as such expects to forgive it in full in the near future.
Immediately following the EMC Acquisition, EMC’s employees in the UAE were housed and employed by TRIO’s UAE entity. Because EMC did not have its own entity in UAE at the time the Company acquired EMC, the Company (through EMC) entered into a transition services agreement with TRIO whereby TRIO would continue to employ the UAE employees for the Company’s benefit—and “second” them to the Company at cost—until the Company formed its own licensed UAE subsidiary. For the three-month period (July 2016 to October 2016) following the EMC Acquisition, the Company paid to TRIO approximately $0.6 million for payroll related services and expenses for the “seconded” employees. The Company did not pay any further amounts under the transition services agreement after October 2016.
Between October 2016 and August 2017, we made payments to TRIO totaling $0.4 million for equipment purchases and service fees in connection with various customer contracts. In September 2017, we made additional equipment purchases totaling $0.4 million for customer orders and for inventory purposes. All of these purchase transactions were on arms’-length pricing and terms.
Subscription Receivable with Former Employee
The Company has an agreement with a former officer of Row 44 to settle his note receivable and accrued interest in exchange for certain shares of Row 44’s common stock held by the former officer. At December 31, 2016 and 2015, the balance of the former officer’s receivable amounted to $0.6 million and $0.5 million, respectively, and is presented as Subscriptions receivable in the Consolidated Balance Sheets. The Company recognizes interest income when earned, using the simple interest method. Interest amounts recognized by the Company during the years ended December 31, 2016, 2015 and 2014 were not material. The Company makes ongoing assessments regarding the collectability of the notes receivable and subscriptions receivable balances.
Office Lease Agreement with Former and Current Employees
In connection with the acquisition of PMG in 2013, the Company acquired an office lease that is currently being occupied and used as part of the operations in Irvine, California. This building was formerly majority owned by one of the founding members of PMG, who was an employee of the Company through March 2015, and by another current employee of the Company. During 2017, they sold their interest in the property to an unaffiliated third party. The lease terminates on June 31, 2020. The Company incurred $0.3 million of rent expense each for the years ended December 31, 2016, 2015 and 2014.
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 December 31, 2015. The Company incurred $0.2 million of rent expense for each of the years ended December 31, 2015 and 2014.
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, such contingent consideration is recorded as compensation expense subsequent to the acquisition date. For the year ended December 31, 2016, the compensation expense incurred relating to the masFlight contingent consideration was insignificant. As of December 31, 2016, the remaining earn-out compensation liability was $0.2 million, the beneficiaries of which include a current executive officer of the Company who was formerly employed by masFlight. The compensation obligation was terminated in August 2017 without any required payment relating thereto.
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 managing directors at Entertainment In Motion, a wholly owned subsidiary of the Company. At December 31, 2014, the outstanding balance relating to the earn-out liability was $1.7 million. The earn-out liability was paid and fully settled during the year ended December 31, 2015. As of December 31, 2016 and 2015, there was no outstanding balance.
AIA Noncontrolling Interests Acquisition
In April 2014, the Company acquired the remaining outstanding shares of AIA for cash consideration of approximately $21.7 million (the “AIA Consideration”). Included in the AIA Consideration was approximately $2.5 million owed to BF Ventures, an entity in which one of the Company’s former directors owned an indirect stake of approximately 25%, which was paid in full during the year ended December 31, 2014.
Warrant Exchange
In connection with the Company’s offer for the exchange of the Company’s outstanding Public SPAC Warrants for common stock of the Company that closed on September 11, 2014, two members of the Company’s board of directors exchanged 7,040,001 warrants for 2,346,446 shares of the Company’s common stock with an aggregate value of $32.1 million.
Registration Rights Agreement
In connection with the closing of its business combination with Row 44 and Advanced Inflight Alliance AG, the Company entered into an amended and restated registration rights agreement, dated January 31, 2013 by and among the Company, Global Eagle Acquisition LLC (the “Sponsor”), Par Investment Partners, L.P. (“PAR”), Putnam Capital Spectrum Fund and Putnam Equity Spectrum Fund, and the members of the Sponsor signatory thereto, including Harry E. Sloan and Jeff Sagansky, pursuant to which the parties thereto obtained the right to cause the Company to register the resale of certain securities held by them (the “registrable securities”) and to sell such registrable securities pursuant to an effective registration statement in a variety of manners, including in underwritten offerings, all on the terms and conditions set forth therein. The Company is required under the terms of the amended and restated registration rights agreement to pay the expenses in connection with the exercise of these rights.
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