Related Party Transactions |
3 Months Ended |
|---|---|
Mar. 31, 2018 | |
| Related Party Transactions [Abstract] | |
| Related Party Transactions |
Related Party Transactions
Loan Agreement with Lumexis
On February 24, 2016, we entered into a loan agreement (the “Loan Agreement”) with Lumexis Corporation (“Lumexis”), a company that provided in-flight entertainment systems to airlines. Lumexis was at the time majority-owned by PAR Investment Partners, L.P. (“PAR”), which is our largest stockholder. When we entered into the Loan Agreement, Mr. Shapiro, our then Board Chair and now our Board’s Lead Independent Director, was also a Managing Partner of PAR and a member of Lumexis’s board of directors.
The Loan Agreement provided for extensions of credit by us to Lumexis of up to $5.0 million. After due consideration, our Board determined that it was appropriate and in our best interests and our stockholders to enter into the Loan Agreement given (x) Lumexis’ position as a key supplier to flydubai (one of our connectivity customers), (y) Lumexis’s position as a key supplier to another then-potential connectivity customer of our company and (z) Lumexis’s future M&A prospects. Our Board further determined that the parties’ relationships did not give rise to any material conflict of interest (including Mr. Shapiro) in entering into the Loan Agreement. Mr. Shapiro recused himself from our Board’s decision to approve the transaction.
The Loan Agreement qualifies Lumexis as our variable interest entity. In accordance with ASC 810, Consolidation, we were not deemed to be the primary beneficiary of Lumexis because we did not hold any power over Lumexis’s activities that most significantly impacted its economic performance. Therefore, Lumexis was not subject to consolidation into our financial reporting. The maximum exposure to loss as a result of the Loan Agreement was the outstanding principal balance of the loan 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’s insolvency, we wrote off the Note during the three months ended June 30, 2016 and discontinued accruing interest receivable.
On December 5, 2016, we, 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 us in partial satisfaction of the Lumexis’ principal amount of the outstanding debt. On January 6, 2017, we—as the senior-most secured creditor of Lumexis—then foreclosed on substantially all of Lumexis’s remaining assets pursuant to a public foreclosure auction. During the third quarter of 2017, the Company entered into an arrangement with flydubai to sell to flydubai certain of the assets acquired. The arrangement resulted in a recovery of approximately $0.2 million during the three months ended September 30, 2017 and a further $0.1 million during the three months ended March 31, 2018.
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 the Company’s share of WMS’s profits or losses in Income from equity method investments in the condensed consolidated statements of operations. During the three months ended March 31, 2018 and March 31, 2017, sales to WMS (for the Company’s services provided to WMS for WMS’s onboard cellular equipment) were approximately $0.2 million and $0.3 million under the terms of the WMS operating agreement and an associated master services agreement with WMS. These sales are included in Revenue in the condensed consolidated statements of operations. As of March 31, 2018 and December 31, 2017, we had a balance due from WMS of $0.1 million and $0.1 million, respectively, included in Accounts receivable, net in the condensed consolidated balance sheets.
Note Payable to WMS
In December 2017, the Company entered into a demand promissory note with WMS (as an advance against future dividends that WMS may pay the Company) for approximately $6.4 million and concurrently signed an agreement to waive future dividends or other such distributions by WMS to the Company until such time as the outstanding principal on the demand promissory note has been repaid in full. The outstanding demand promissory note will be reduced dollar-for-dollar by any such distribution amounts waived. The Company may prepay the promissory note at any time without prepayment penalty. The unpaid principal of the promissory note bears interest at 2.64%, and all interest calculated under the promissory note commences upon the occurrence of an “Event of Default,” which includes, for example, the Company’s breach of the promissory note or the WMS operating agreement, Company insolvency events and material judgments against the Company. The entire principal balance of the promissory note together with all accrued but unpaid interest shall be due on the earliest to occur of (i) demand by the holder, (ii) December 31, 2019 and (iii) the date of acceleration of the promissory note as a result of the occurrence of an event of default. The principal amount of the outstanding note was $6.4 million as of March 31, 2018 and has been included within current portion of long-term debt in the condensed consolidated balance sheet as of March 31, 2018.
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 our share of Santander’s profits or losses in Income from equity method investments in the condensed consolidated statements of operations. During the three months ended March 31, 2018 and March 31, 2017 the Company purchased approximately $1.4 million and $0.3 million from Santander for their Teleport services and related network operations support services. As of March 31, 2018 and December 31, 2017 the Company owed Santander approximately $1.3 million and $0.9 million, respectively, which is included in Accounts payable and accrued liabilities in the condensed consolidated balance sheets for their teleport services and related network operations support services.
Transactions with TRIO Connect, LLC and its Affiliates
In July 2015 (prior to our acquisition of EMC in July 2016), EMC divested its interest in TRIO Connect (“TRIO”), one of EMC’s joint ventures formed to commercialize EMC’s ARABSAT Ka Band contract, such that following the divestiture EMC no longer had any ownership in TRIO and TRIO was instead owned by funds affiliated with ABRY Partners and EMC’s other former stockholders. (ABRY is currently one of our significant stockholders.) We did not acquire the TRIO business in connection with our acquisition of EMC.
Prior to our acquisition of the EMC business, EMC and its subsidiaries had collectively made various loans to TRIO and its affiliated entities in an aggregate amount equal to approximately $6.5 million. Also prior to the EMC acquisition, STMEA (FZE), a wholly-owned subsidiary of TRIO, had made sales of equipment and provided employee payroll services to EMC and its subsidiaries in an aggregate amount equal to approximately $5.7 million. After netting the then-outstanding trade payables for the equipment sales and payroll services against the then-outstanding loan amounts, TRIO and its affiliates collectively owed EMC and its subsidiaries approximately $0.8 million at the time we acquired EMC, and we inherited this receivable in the acquisition.
Between October 2016 and August 2017, we made payments to a TRIO affiliate totaling $0.4 million for equipment purchases and service fees in connection with servicing various customer contracts. In September 2017, we made additional equipment purchases from TRIO’s affiliate totaling $0.4 million for customer orders and for inventory purposes. We believe that all of these purchase transactions were on arms’-length pricing and terms, and our Audit Committee approved them.
ABRY Partners divested its interest in our TRIO counterparty’s operations in November 2017, such that the TRIO counterparty is no longer a related party of the Company.
ABRY Board Nomination Right
ABRY, through its affiliate EMC HoldCo 2 B.V., had a right under a nomination letter agreement (the “ABRY Nomination Agreement”) that we entered into in connection with the EMC acquisition to nominate one individual for election to our Board. This right was due to terminate when (i) ABRY held less than 5% of our outstanding common stock, (ii) ABRY or its affiliates consummated a transaction involving a company or business that competed with any business then engaged in (or contemplated to be engaged in) by us, (iii) any partner, member or employee of ABRY or any of its affiliates became a director, board observer or executive officer of any competitor of ours, (iv) we sold all or substantially all of our assets, (v) we participated in a merger, consolidation or similar transaction in which our stockholders immediately prior to the consummation of the transaction held less than 50% of all of the outstanding common stock or other securities entitled to vote for the election of directors of the surviving entity in such transaction or (vi) ABRY gave written notice to us that it desired to terminate its nomination right. The ABRY Nomination Agreement also required that, subject to exceptions, ABRY and its affiliates would be subject to a “standstill” provision. This provision prohibited ABRY and its affiliates from taking actions to influence or control us (including by acquiring additional securities) until six months after the termination of ABRY’s nomination right.
ABRY Partners irrevocably forfeited its nomination right in February 2018. The “standstill” provision described above remains in effect through August 2018.
Subscription Receivable with Former Employee
A former employee is party to a Secured Promissory Note dated July 15, 2011, pursuant to which the former employee agreed to pay the Company (as successor to Row 44, Inc., which is a Company subsidiary) a principal sum of approximately $0.4 million, plus interest thereon at a rate of 6% per annum. The former employee granted the Company a security interest in shares of Row 44 held by him (which Row 44 shares were subsequently converted into 223,893 shares of the Company’s common stock) to secure his obligations to repay the loan. As of March 31, 2018 and December 31, 2017, the balance of the note (with interest) was approximately $0.6 million, which is presented as a subscription receivable. We recognize interest income on the note when earned (using the simple interest method) but have not collected any interest payments since the origination of the note. Interest income recognized by the Company during the three months ended March 31, 2018 and March 31, 2017 was not material. The Company makes ongoing assessments regarding the collectability of this note and the subscription receivable balance.
masFlight Earn-Out
In connection with our acquisition of masFlight on August 4, 2015 (the “masFlight Closing Date”), we agreed that if, prior
to the second anniversary of the masFlight Closing Date, we terminated Josh Marks (formerly CEO of masFlight and now our CEO) without “cause” or he resigned with “good reason,” we would pay a $10 million accelerated earnout payment to Mr. Marks and the other masFlight sellers. We did not terminate Mr. Marks prior to this date, and so Mr. Marks’ acceleration right has expired.
Registration Rights Agreement
When we consummated our business combination in January 2013 with Row 44 and Advanced Inflight Alliance AG, we entered into an amended and restated registration rights agreement with PAR, entities affiliated with Putnam Investments, Global Eagle Acquisition LLC (the “Sponsor”) and our then and current Board members Harry E. Sloan and Jeff Sagansky, who were affiliated with the Sponsor. Under that agreement, we agreed to register the resale of securities held by them (the “registrable securities”) and to sell those registrable securities pursuant to an effective registration statement in a variety of manners, including in underwritten offerings. We also agreed to pay the securityholders’ expenses in connection with their exercise of their registration rights.
During 2017, Putnam Investments was a beneficial owner of more than 5% of our outstanding common stock. According to a Schedule 13G/A filed on February 7, 2018, Putnam Investments no longer holds more than 5% of our outstanding common stock, and as such has ceased to be a related party. PAR and Messrs. Sloan and Sagansky continue to be related parties.
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