Quarterly report pursuant to Section 13 or 15(d)

Convertible, Redeemable Preferred Stock, Stock Options, Common Stock and Warrants

v2.4.0.6
Convertible, Redeemable Preferred Stock, Stock Options, Common Stock and Warrants
 3 Months Ended
Mar. 31, 2013
Equity [Abstract]  
Convertible, Redeemable Preferred Stock, Stock Options, Common Stock and Warrants
Convertible, Redeemable Preferred Stock, Stock Options, Common Stock and Warrants

Convertible, Redeemable Preferred Stock

The following is a summary of activity of Row 44's convertible, redeemable preferred stock for the three months ended March 31, 2013:

(in thousands)
 
 
 
 
 
 
 
Row 44 Preferred Stock
Series A-1
Series A-2
Series B-1
Series B-2
Series C-1
Series C-2
Total
Balance - January 1, 2013
$
9,245

$
21,454

$
27,488

$
19,981

$
24,535

$
19,837

$
122,540

Cumulative dividends
60

139

179

129

170

141

818

Accretion of preferred stock
—

—

—

—

57

67

124

Conversion to common stock
(9,305
)
(21,593
)
(27,667
)
(20,110
)
(24,762
)
(20,045
)
(123,482
)
Balance - March 31, 2013
$
—

$
—

$
—

$
—

$
—

$
—

$
—



Stock Options

In connection with the signing of the Row 44 Merger Agreement, Row 44's Board of Directors elected to accelerate the vesting of all outstanding stock options of Row 44 effective November 2012. Accordingly, the Company recorded all remaining unamortized grant date fair value as compensation expense in 2012 and terminated the Row 44 stock option plan as of January 31, 2013. Of the 43,686,492 Row 44 stock options outstanding under the plan, 40,644,825 were exchanged for shares of Global Eagle stock, 2,816,667 options were forfeited and 225,000 options were exchanged for cash of $22,000.

After the signing of the Row 44 Merger Agreement, the Company granted 2,175,000 Global Eagle stock options to key executives, 1,025,000 stock options to key employees and 150,000 stock options to the board members which had a weighted-average grant date fair value of $4.34 per stock option. Fair values of the stock options were determined using the Black-Scholes model and the following level 3 assumptions:

Stock Value (low value of range) (per share)
$
9.94

Stock Value (high value of range) (per share)
$
10.04

Weighted-Average Expected Term
4.87 years

Risk-Free Rate
0.77
%
Expected Stock Volatility
50.00
%
Dividend Yield
—
%


Stock option activity for three months ended March 31, 2013 is as follows:

Row 44 2011 Equity Incentive Plan
Shares
Weighted Average Exercise Price
Weighted Average Remaining Contractual Term
Aggregate Intrinsic Value (in thousands)
Outstanding - January 1, 2013
43,686,492

$
0.11

7.95 years

$
9,187

     Granted
—

—

—

—

     Exercised-cashless (Global Eagle)
(40,644,825
)
0.11

—

—

     Exercised-cash
(225,000
)
0.10

—

—

     Forfeited
(2,816,667
)
0.10

—

—

Outstanding - January 31, 2013
—

$
—

—

$
—



Global Eagle Stock Option Plan
Shares
Weighted Average Exercise Price
Weighted Average Remaining Contractual Term
Aggregate Intrinsic Value (in thousands)
Outstanding - January 31, 2013
—

$
—

—

$
—

     Granted
3,350,000

9.94

4.88 years

10,250

     Exercised
—

—

—

—

     Forfeited
—

—

—

—

Outstanding - March 31, 2013
3,350,000

9.94

4.88 years

10,250

Exercisable at March 31, 2013
6,252

10.00

4.89 years

—

Expected to vest at March 31, 2013
3,343,748

$
9.94

4.88 years

$
10,250



The following is a summary of the Company's stock options outstanding at March 31, 2013:

Exercise Price
Number Outstanding
Weighted Average Remaining Contractual Life
Number Exercisable
Weighted Average Remaining Contractual Life
$
10.00

2,325,000

4.84 years
6,252

4.89 years
$
9.79

1,025,000

4.93 years
—

n/a


The fair value of stock options vested and related stock-based compensation recognized, during the three months ended March 31, 2013, and 2012, amounted to $0.5 million and $0.5 million, respectively, and was included in salaries and wages and research and development expenses as follows:

 
Three Months Ended March 31,
(in thousands)
2013
2012
Salaries and wages
$
496

$
443

Research and development
—

16

                            Total
$
496

$
459



Warrants

Row 44 warrants for common stock convertible into GEE common stock were accounted for as equity instruments at March 31, 2013.

The following is a summary of Row 44 warrants for common stock convertible into GEE common stock for the three months ended March 31, 2013:

Row 44 Warrants for Common Stock - Upon Exercise Convertible to Global Eagle Common Stock
Number of Warrants
Weighted Average Exercise price
Weighted Average Remaining Contractual Term
Outstanding - January 1, 2013
84,612,107

$
0.0801

4.92 years
     Granted
2,414,524

—


     Exercised
(65,964,131
)
0.0001


     Forfeited
—

—


Outstanding - January 31, 2013
21,062,500

0.3214

4.03 years
     Granted
—

—


     Exercised
—

—


     Forfeited
—

—


Outstanding - March 31, 2013
21,062,500

0.3214

3.87 years
Exercisable at March 31, 2013
21,062,500

0.3214

3.87 years


The amount of Row 44 warrants for Series C preferred stock convertible into GEE common stock changed from 42,611,344 to 21,437,586 because the warrants owned by AIA were eliminated in consolidation associated with the Business Combination.

The following is a summary of all Row 44 warrants (exercise price per warrant and number of warrants presented using the conversion ratio to Global Eagle common stock used in the Row 44 Merger) outstanding at March 31, 2013:

Exercise Price per Warrant (as converted)
Number of Warrants (as converted)
Class of Shares
Weighted Average Remaining Life
 
$
4.41

4,282

Common
3.94 years
 
8.82

685,199

Common
3.97 years
 
23.53

32,119

Common
1.74 years
 Total outstanding
 
721,600



 
$
8.74

734,451

Series C-2
4.18 years
Total outstanding
 
734,451





The following is a summary of Global Eagle warrants for the three months ended March 31, 2013:

Global Eagle Warrants
Number of Warrants
Weighted Average Exercise price
Weighted Average Remaining Contractual Term
Outstanding - January 31, 2013
25,992,500

$
11.50

5.00 years
     Granted
666,667

11.50


     Exercised
—

—


     Forfeited
—

—


Outstanding - March 31, 2013
26,659,167

11.50

4.92 years
Exercisable at March 31, 2013
26,659,167

11.50

4.92 years


The following is a summary of all Global Eagle warrants outstanding at March 31, 2013:

Exercise Price per Warrant
Number of Warrants
Class of Shares
Weighted Average Remaining Life
 
$
11.50

18,992,500

Public Warrants
4.92 years
Total outstanding
 
18,992,500

 
 
 
11.50

666,667

Sponsor Warrants
4.83 years
 
$
11.50

7,000,000

Sponsor Warrants
4.92 years
 Total outstanding
 
7,666,667

 
 

The Company accounted for its 18,992,500 public warrants and 333,333 of the sponsor warrants as derivative liabilities at March 31, 2013. These liabilities are subject to remeasurement at each balance sheet date until exercised, with any changes in fair value is recognized in the consolidated statements of operations. The fair value of warrants issued by the Company has been estimated using the warrants' quoted market price.

On March 29, 2013, Global Eagle Acquisition, LLC ("Sponsor") executed a waiver relating to 7,333,334 of the sponsor warrants. The waiver relates to a specific provision of the warrant agreement that provides for a reduction of exercise price of the warrants. This provision originally triggered liability accounting as discussed above and the warrants were recorded as derivative liabilities. The Company valued the warrants as of the waiver date and recorded the change in fair value of the warrants in earnings and reclassified the portion of the warrant liability of $9.9 million represented by these sponsor warrants to equity. As a result of the waiver, these sponsor warrants became equity warrants as of March 29, 2013, leaving the 18,992,500 public warrants and 333,333 of the sponsor warrants accounted for as derivative liabilities.