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, 2017
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 approximately 5.0 million additional shares of the Company’s common stock. Pursuant to the EMC purchase agreement, 50% of the newly issued shares were valued at $8.40 per share, and the other 50% were valued at the volume-weighted average price of a share of Company common stock measured two days prior to the first anniversary date.

Furthermore, 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 500,000 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 $10.00 per share and an additional 400,000 shares of its common stock when and if the closing price exceeds $12.00 per share (together, the “Supplemental Shares”) at any time in the future if the share price reaches these price thresholds. 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 settlement documentation, and if the equivalent liquidation price per share at that time 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. See Note 10. Commitments and Contingencies for a further description of the Sound Recording Settlements.
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.
2013 Equity Plan
Under our 2013 Amended and Restated Equity Incentive Plan (as amended, the “2013 Equity Plan”), the Administrator of the Plan, which is the Compensation Committee of our Board of Directors, was able to 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. We ceased using the 2013 Equity Plan for new equity issuances in December 2017 upon receiving stockholder approval of our new 2017 Omnibus Long-Term Incentive Plan, although we continue to have outstanding previously granted equity awards issued under the 2013 Equity Plan. These previously granted awards represent the right to receive 7,070,298 shares of our common stock (as of January 18, 2018) if and when they later vest and/or are exercised. See “2017 Equity Plan” immediately below.
2017 Equity Plan
On December 21, 2017, our stockholders approved a new 2017 Omnibus Long-Term Incentive Plan (the “2017 Omnibus Plan”). We had 2,097,846 shares remaining shares available for issuance under the 2013 Equity Plan (as of that date) and those shares rolled into the 2017 Omnibus Plan and are now available for grant thereunder. The 2017 Omnibus Plan separately made available 6,500,000 shares of our common stock for new issuance thereunder, in addition to those rolled over from the 2013 Equity Plan. The Administrator of the 2017 Omnibus Plan, which is the Compensation Committee of our Board of Directors, may grant share awards (through stock options, restricted stock, RSUs (including both time-vesting and performance-based RSUs) and other incentive awards) to employees, officers, non-employee directors, and consultants.
Stock Repurchase Program

In March 2016, the Company’s Board of Directors 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 that 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. The Company did not repurchase any shares of its common stock during the year ended December 31, 2017. 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, 2017 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, 2017. 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.

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, 2017, 2016 and 2015, respectively:

 
2017
 
2016
 
2015
Common stock price on grant date
$
2.74

 
$
8.34

 
$
12.91

Expected life (in years)
4.75

 
3.91

 
3.77

Risk-free interest rate
2.26
%
 
1.15
%
 
1.28
%
Expected stock volatility
52
%
 
44
%
 
43
%
Expected dividend yield
0
%
 
0
%
 
0
%
Fair value of stock options granted
$
0.93

 
$
2.93

 
$
4.41



The total intrinsic value of options exercised during the year ended December 31, 2015 was $2.5 million. There was no significant intrinsic value of options exercised during the year ended December 31, 2017 and 2016.

Stock option activity for year ended December 31, 2017 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, 2017
6,723

 
$
10.37

 
2.70
 
$
59

Granted
2,115

 
$
4.63

 

 


Exercised
—

 
$
—

 

 

Forfeited
(1,761
)
 
$
9.95

 

 

Balance unexercised at December 31, 2017
7,077

 
$
8.76

 
2.60
 
$
—

Exercisable at December 31, 2017
4,794

 
$
9.92

 
1.58
 
$
—

Vested and expected to vest after December 31, 2017
7,077

 
$
8.76

 
2.60
 
$
—



The following is a summary of the Company’s stock options outstanding at December 31, 2017:

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
$16.70 - $16.70
21

 
0.14
 
$
16.70

 
21

 
$
16.70

$13.26 - $16.06
183

 
1.89
 
$
14.30

 
139

 
$
14.55

$12.51 - $13.15
1,015

 
2.09
 
$
12.95

 
780

 
$
12.98

$10.57 - $11.43
808

 
1.22
 
$
10.76

 
731

 
$
10.76

$10.00 - $10.00
1,345

 
0.33
 
$
10.00

 
1,345

 
$
10.00

$9.31 - $9.79
425

 
0.38
 
$
9.62

 
425

 
$
9.62

$6.34 - 9.25
1,021

 
2.83
 
$
8.77

 
637

 
$
8.73

$6.22 - $6.22
1,000

 
3.67
 
$
6.22

 
530

 
$
6.22

$6.18 - $6.18
144

 
3.02
 
$
6.18

 
67

 
$
6.18

$3.21 - $3.21
1,115

 
6.61
 
$
3.21

 
119

 
$
3.21

 
7,077

 
2.60
 
$
8.76

 
4,794

 
$
9.92



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, 2017 and 2016, the Company granted 268,000 RSUs and 38,000 RSUs, respectively, to the Board of Directors that fully vest on the 13 month anniversary of the grant date. The Company also granted 3,643,000 RSUs and 1,580,000 RSUs, respectively, to certain employees that vest 1/4th on the grant anniversary date over a four-year term during the years ended December 31, 2017 and 2016, respectively.

RSU activity during the year ended December 31, 2017 was as follows:

 
Shares (in thousands)
 
Weighted Average Grant Date Fair Value
 
Aggregate Intrinsic Value (in thousands)
Balance nonvested at January 1, 2017
1,638

 
$
8.60

 
$
10,579

Granted
3,911

 
$
2.67

 
 
Vested
(368
)
 
$
8.64

 
 
Forfeited
(590
)
 
$
8.48

 
 
Balance nonvested at December 31, 2017
4,591

 
$
3.56

 
$
10,512

Vested and expected to vest at December 31, 2017
4,533

 
$
3.47

 
$
10,381



The total fair value of RSUs vested during the years ended December 31, 2017, 2016 and 2015 was $1.2 million, $2.1 million and $0.6 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, 2017, the Company granted 526,100 PSUs with a weighted-average grant date fair value of $2.81 per unit and using a risk free rate of 1.89%. As of December 31, 2017, there were 683,320 nonvested PSUs outstanding. During the year ended December 31, 2016, the Company granted 235,188 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 235,188 nonvested PSUs outstanding. There were no PSUs outstanding as of December 31, 2015.

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, 2017, 2016 and 2015 (in thousands):

 
Year Ended December 31,
 
2017
 
2016
 
2015
Consolidated Statement of Operations Classification:
 
 
 
 
 
Cost of sales
$
300

 
$
313

 
$
322

Sales and marketing
423

 
629

 
701

Product development
634

 
994

 
1,020

General and administrative
6,228

 
8,811

 
6,192

Total
$
7,585

 
$
10,747

 
$
8,235


As of December 31, 2017, the Company had approximately $29.6 million of unrecognized employee related stock-based compensation, which it expects to recognize over a weighted-average period of approximately 2.77 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 the Company’s common stock (“Legacy Row 44 Warrants”). During the year ended December 31, 2017 all remaining Legacy Row 44 Warrants expired.

Public SPAC Warrants

The following is a summary of Public SPAC Warrants for the year ended December 31, 2017:

 
Number of Warrants (in thousands)
 
Weighted Average Exercise price
 
Weighted Average Remaining Contractual Term (in years)
Outstanding at January 1, 2017
6,173

 
$
11.50

 
 
Granted
—

 
—

 
 
Exercised
—

 
—

 
 
Purchased
—

 
—

 
 
Exchanged for Global Eagle common stock
—

 
—

 
 
Forfeited
—

 
—

 
 
Outstanding and exercisable at December 31, 2017
6,173

 
$
11.50

 
0.09


As of December 31, 2017 and 2016, 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, 2017, 2016 and 2015, the Company recorded approximately $0.4 million, $23.6 million and $11.9 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, 2017 the fair value of warrants issued by the Company was estimated using the Black-Scholes option pricing model. The Public SPAC Warrants had a five-year term and expired on January 31, 2018.

Warrants Repurchase Program

During the year ended December 31, 2014 the Board of Directors 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 prior warrant purchases). In August 2015, the Board of Directors increased this amount by an additional $20.0 million. As of December 31, 2017, $16.7 million remained 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. The Company did not repurchase any warrants during the years ended December 31, 2017 or 2016.
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.