Annual report pursuant to Section 13 and 15(d)

Common Stock, Stock-Based Awards and Warrants

v3.8.0.1
Common Stock, Stock-Based Awards and Warrants
 12 Months Ended
Dec. 31, 2016
Equity [Abstract]  
Common Stock, Stock-Based Awards and Warrants
Common Stock, Stock-Based Awards and Warrants

Common Stock

Issuance of Common Stock

The Company issued approximately 5.5 million shares of its common stock in connection with the EMC Acquisition on July 27, 2016. On the first anniversary of the EMC Acquisition, on July 27, 2017, the Company issued to the former member unit holders an additional approximately 5.0 million shares of the Company’s common stock. Pursuant to the EMC purchase agreement, 50% of the newly issued shares was valued at $8.40 per share, and 50% of which was valued at the volume-weighted average price of a share of Company common stock measured two days prior the first anniversary date.

Additionally, in August 2016, the Company issued approximately 1.8 million shares of its common stock as partial consideration for the Sound-Recording Settlements. The Company is obligated to issue an additional 0.5 million shares of its common stock to UMG in connection with the litigation when and 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 when and if the closing price exceeds $12 per share (together, the “Supplemental Shares”) at any time in the future. 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.

During the year ended December 31, 2015, 257,058 of Row 44 warrants were exchanged for 93,161 shares of common stock.

During the year ended December 31, 2015, the Company issued 1,337,760 shares of common stock in exchange for the surrender of Public SPAC Warrants for 3,957,280 shares of the Company’s common stock.

On September 11, 2014, the Company completed an offer to all holders of the Company’s outstanding warrants exercisable for shares of the Company’s common stock, to receive 0.3333 shares of common stock at an exercise price of $11.50 per share in exchange for every warrant tendered by the holders thereof (approximately one share for every three warrants tendered), up to a maximum of 15,000,000 warrants. On September 11, 2014, the Company issued 4,227,187 shares of common stock in exchange for 12,682,755 warrants and recognized a gain on the exchange of approximately $0.8 million included in change in fair value of financial instruments in the Consolidated Statement of Operations for the year ended December 31, 2014.

In August 2014, the Company issued 28,161 shares of common stock as a working capital settlement to Row 44 former stockholders with an aggregate fair value of $0.3 million. The entire value was expensed during the year ended December 31, 2014 and included in other income (expense), net on the Consolidated Statement of Operations.

On June 17, 2014, PAR Investment Partners, L.P. (“PAR”) converted 19,118,233 shares of non-voting common stock of the Company into an equal number of shares of the Company’s common stock, par value $0.0001 per share, in accordance with the terms of the non-voting common stock set forth in the Company’s Second Amended and Restated Certificate of Incorporation. The conversion was exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 3 (a)(9) thereof. No commission or other remuneration was paid or given directly or indirectly for soliciting the conversion.
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 year ended December 31, 2016, the Company repurchased 0.6 million shares of its common stock for aggregate consideration of $5.2 million. As of December 31, 2016, the remaining authorization under the stock repurchase plan was $44.8 million.

Stock-Based Awards

EMC Employment Inducement Awards

On July 27, 2016, the Company granted its then President and Chief Strategy Officer the following stock-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. Such compensation expense is recorded in General and administrative in the Consolidated Statement of Operations for the year ended December 31, 2016. Mr. Avellan terminated his employment with the Company in April 2017. Under the terms of his consulting agreement, Mr. Avellan received continued vesting on his outstanding equity awards through the date of cessation of those consulting services. Mr. Avellan ceased providing consulting services to the Company in November 2017.

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 are 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 thereof as it may be amended from time to time, the “Inducement Equity Plan”). Subject to continued vesting due to his consulting relationship with the Company, one-third of the Option Awards vested 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 continued vesting due to his consulting relationship with the Company through each vesting date, the restricted stock units will vest in three equal annual installments, with the first installment vested 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 certain other EMC employees, in the aggregate, nonqualified stock options to purchase 72,600 shares of the Company’s common stock and 73,750 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 vested 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 vested on July 27, 2017 and the remaining installments vesting annually thereafter.

2013 Equity Plan

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 shares (through 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. As of December 31, 2016, there were 1,859,792 shares available for future grant under the Plan.

Stock Options

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. Employee stock option grants generally have five- and seven- year terms (depending on when they were issued) and employee stock options generally vest 1/4th on the anniversary of the vesting commencement date and 1/36th monthly thereafter, over a four-year period. Stock options granted to the Company’s Board of Directors have five- and seven- year terms (depending on when they were issued) and vest 25% per quarter during the calendar year. In 2017, the Board’s Compensation Committee determined that it would only issue RSUs (vesting on the earlier of the next annual meeting of stockholders and 12 months) as part of its director compensation program. Certain stock option awards have accelerated vesting provisions in the event of a change in control or termination without cause.

The fair values of stock options issued were determined on the grant date using the Black-Scholes option pricing model and the following level 3 assumptions for the years ended December 31, 2016, 2015 and 2014, respectively:

 
2016
 
2015
 
2014
Common stock price on grant date
$
8.34

 
$
12.91

 
$
11.53

Expected life (in years)
3.91

 
3.77

 
4.00

Risk-free interest rate
1.15
%
 
1.28
%
 
1.52
%
Expected stock volatility
44
%
 
43
%
 
58
%
Expected dividend yield
0
%
 
0
%
 
0
%
Fair value of stock options granted
$
2.93

 
$
4.41

 
$
5.14



The total intrinsic value of options exercised during the years ended December 31, 2015 and 2014 was $2.5 million and $1.7 million, respectively. There was no significant intrinsic value of options exercised during the year ended December 31, 2016.

Stock option activity for year ended December 31, 2016 is as follows:

 
Shares
(in thousands)
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Term (in years)
 
Aggregate Intrinsic Value
(in thousands)
Balance unexercised at January 1, 2016
5,625

 
$
11.20

 
3.18
 
$
204

Granted
1,927

 
$
8.34

 

 


Exercised
(26
)
 
$
9.87

 

 

Forfeited
(780
)
 
$
11.42

 

 

Balance unexercised at December 31, 2016
6,746

 
$
10.36

 
2.70
 
$
59

Exercisable at December 31, 2016
3,837

 
$
10.81

 
1.82
 
$
—

Vested and expected to vest after December 31, 2016
6,121

 
$
10.45

 
2.55
 
$
43



The following is a summary of the Company’s stock options outstanding at December 31, 2016:

Range of Exercise Price
Number Outstanding
(in thousands)
 
Weighted Average Remaining Contractual Term (in years)
 
Weighted Average Exercise Price
 
Number Exercisable
(in thousands)
 
Weighted Average Exercise Price
$12.90 - $16.70
1,215

 
2.87
 
$
13.38

 
745

 
$
13.44

$10.57 - $12.51
1,436

 
2.56
 
$
11.24

 
860

 
$
11.04

$10.00 - $10.00
1,380

 
1.34
 
$
10.00

 
1,342

 
$
10.00

$9.25 - $9.87
1,286

 
2.28
 
$
9.54

 
801

 
$
9.70

$6.18 - $9.21
1,429

 
4.40
 
$
8.01

 
89

 
$
8.72

 
6,746

 
2.70
 
$
10.36

 
3,837

 
$
10.81



Restricted Stock Units (“RSU”)

Under the 2013 Equity Plan and associated form of award agreement, our time vesting RSU awards to employees generally vest annually on each anniversary of the grant date and generally over a four-year term. The time-vesting 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 the time-vesting RSUs generally equals the closing price of the Company’s common stock on the grant date.

During the years ended December 31, 2016 and 2015, the Company granted 38,000 RSUs and 29,000 RSUs, respectively, to the Board of Directors that fully vest on the 13 month anniversary of the grant date. The Company also granted 1,580,000 RSUs and 401,000 RSUs to certain employees that vest 1/4th on the grant anniversary date over a four-year term during the years ended December 31, 2016 and 2015, respectively.

RSU activity during the year ended December 31, 2016 was as follows:

 
Shares (in thousands)
 
Weighted Average Grant Date Fair Value
 
Aggregate Intrinsic Value (in thousands)
Balance nonvested at January 1, 2016
408

 
$
12.71

 
 
Granted
1,618

 
$
7.91

 
 
Vested
(264
)
 
$
9.62

 
 
Forfeited
(124
)
 
$
10.98

 
 
Balance nonvested at December 31, 2016
1,638

 
$
8.60

 
$
10,579

Vested and expected to vest at December 31, 2016
1,068

 
$
8.48

 
$
6,899



The total fair value of RSUs vested during the years ended December 31, 2016, 2015 and 2014 was $2.1 million, $0.6 million and $0.1 million, respectively.

Performance Based Restricted Units (“PSU”)

Under the 2013 Equity Plan, in October 2016, the Board of Directors issued new performance based PSU awards, which give the recipient the right to receive Company common stock based on the Company’s total stockholder return relative to the Russell 2000 index during the three-year period beginning from date of grant and ending on the third anniversary of the grant date.

The compensation expense recognized for the awards is based on the grant date fair value of a unit that is determined using Monte-Carlo simulation multiplied by the number of units granted. Depending on the outcome of these performance goals, a recipient may ultimately earn a number of units greater or less than the number of units granted. In general, participants vest in their PSU awards at the end of the performance period with continuous employment or service during the period.

During the year ended December 31, 2016, the Company granted 0.2 million PSUs with a weighted-average grant date fair value of $9.93 per unit and using a risk free rate of 1.02%. As of December 31, 2016, there were 0.2 million nonvested PSUs outstanding. There were no PSUs outstanding as of December 31, 2015.

During the year ended December 31, 2014, the Company granted certain employees performance-based RSUs. A performance unit gave the recipient the right to receive common stock that was contingent upon achievement of a specified predetermined performance target for fiscal 2014 and the continuation of employment for a period of one year from the grant date. The number of shares issued of the Company’s common stock upon completion of the performance period totaled 77,687.

Stock-Based Compensation Expense

Stock-based compensation expense related to all employee and, where applicable, non-employee stock-based awards was as follows for the years ended December 31, 2016, 2015 and 2014 (in thousands):

 
Year Ended December 31,
 
2016
 
2015
 
2014
Consolidated Statement of Operations Classification:
 
 
 
 
 
Cost of sales
$
313

 
$
322

 
$
36

Sales and marketing
629

 
701

 
46

Product development
994

 
1,020

 
268

General and administrative
8,811

 
6,192

 
7,717

Total
$
10,747

 
$
8,235

 
$
8,067


As of December 31, 2016, the Company had approximately $23.1 million of unrecognized employee related stock-based compensation, which it expects to recognize over a weighted-average period of approximately 2.70 years.
 
Warrants

Legacy Row 44 Warrants

In conjunction with the business combination with Row 44 and Advanced Inflight Alliance AG in January 31, 2013, the Company converted 21,062,500 Row 44 warrants to warrants to purchase up to 721,897 shares of Global Eagle common stock (“Legacy Row 44 Warrants”). The following is a summary of the Legacy Row 44 Warrants outstanding as of December 31, 2016:

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

 
689

 
0.21
Legacy Row 44 Warrants (2)
$
8.62

 
477

 
0.43


(1)
Originally issuable for Row 44 common stock, and now issuable for Company common stock. The exercise period for these Legacy Row 44 Warrants expired on March 20, 2017.

(2)
Originally issuable for Row 44’s Series C preferred stock and now issuable for Company common stock. The exercise period for these Legacy Row 44 Warrants expired on June 7, 2017.

Public SPAC Warrants

The following is a summary of Public SPAC Warrants for the year ended December 31, 2016:

 
Number of Warrants (in thousands)
 
Weighted Average Exercise price
 
Weighted Average Remaining Contractual Term (in years)
Outstanding at January 1, 2016
6,173

 
$
11.50

 
 
Granted
—

 
—

 
 
Exercised
—

 
—

 
 
Purchased
—

 
—

 
 
Exchanged for Global Eagle common stock
—

 
—

 
 
Forfeited
—

 
—

 
 
Outstanding and exercisable at December 31, 2016
6,173

 
$
11.50

 
1.08


As of December 31, 2016 and 2015, the Company accounted for its 6,173,228 Public SPAC Warrants as derivative liabilities in the Consolidated Balance Sheets. During the years ended December 31, 2016, 2015 and 2014, the Company recorded approximately $23.6 million, $11.9 million and $(7.0) million in Change in fair value of derivatives in the Consolidated Statements of Operations as a result of the remeasurement of these warrants at the respective balance sheet dates. As of December 31, 2016, the fair value of warrants issued by the Company was estimated using the Black-Scholes option pricing model. The Public SPAC Warrants have a five-year term and will expire in January 31, 2018. In the event the Company’s closing stock price is at or above $17.50 for twenty of thirty consecutive trading days, the Company can redeem the 6,173,228 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 management decides, at its option, to make them exercisable on a cashless basis.

Warrants Repurchase Program

During the year ended December 31, 2014, the Board authorized the Company to repurchase Public SPAC Warrants for an aggregate purchase price, payable in cash and/or shares of common stock, of up to $25.0 million (inclusive of certain prior warrant purchases). In August 2015, the Board increased this amount by an additional $20.0 million. As of December 31, 2016, $16.7 million was available for warrant repurchases under this authorization. The amount the Company spends and the number of Public SPAC Warrants repurchased varies based on a variety of factors including the warrant price. During 2015, the Company issued 1,337,760 shares of common stock in exchange for the surrender of Public SPAC Warrants exercisable for 3,957,280 shares of the Company’s common stock.

On September 11, 2014, the Company completed an offer to all holders of the Company’s outstanding warrants exercisable for shares of the Company’s common stock, that were originally issued by GEAC and which have an exercise price of $11.50 per share (the “Warrants”), to receive 0.3333 Shares in exchange for every Warrant tendered by the holders thereof (approximately one share for every three Warrants tendered), up to a maximum of 15,000,000 Warrants. On September 11, 2014, the Company issued 4,227,187 Shares in exchange for 12,682,755 Warrants and recognized a gain on the exchange of approximately $0.8 million included in change in fair value of financial instruction instruments in the Consolidated Statement of Operations for the year ended December 31, 2014.

During the year ended December 31, 2014, the Company also repurchased 403,054 Public SPAC Warrants for total cash consideration of $1.4 million. As of December 31, 2016, these repurchased warrants were not retired and were held by the Company.