Quarterly report pursuant to Section 13 or 15(d)

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

v2.4.0.8
Convertible, Redeemable Preferred Stock, Stock Options, Common Stock and Warrants
 9 Months Ended
Sep. 30, 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 nine months ended September 30, 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 - September 30, 2013
$
—

$
—

$
—

$
—

$
—

$
—

$
—


Common Stock

The following is a summary of activity of the Company's common stock for the nine months ended September 30, 2013 (in thousands):

GEE Common Stock
Common Stock
Amount
Common Non-Voting Stock
Amount
Balance - January 1, 2013
20,352

$
2

—

$
—

Recapitalized as a result of Row 44 Merger
15,373

2

4,750

1

Stock Purchase of AIA
—

—

14,368

1

Repurchased and retired common stock held by certain executives
(95)

—

—

—

Asset Purchase of PMG
431

—

—

—

Balance - September 30, 2013
36,061

$
4

19,118

$
2



During the three months ended September 30, 2013, the Company acquired PMG assets in exchange for approximately $10.8 million, 431,734 shares of common stock and the assumption of approximately $3.3 million in debt. 151,420 of the shares are amounts held in escrow amounting to $1.6 million. In addition and during the same period, the Company also repurchased and retired approximately 95,000 shares of common stock to settle certain employee tax withholding obligations associated with the Business Combination in January 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:

Expected life (in years)
4.87

Risk-free interest rate
0.77
%
Expected stock volatility
50.00
%
Expected dividend yield
0.00
%


Stock option activity for nine months ended September 30, 2013 is as follows:

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

$
0.11

7.95
$
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 (in years)
Aggregate Intrinsic Value
Outstanding at January 31, 2013
—

$
—

—
$
—

Granted
5,270,000

9.82

4.44
149,500

Exercised
—

—

—
—

Forfeited
(500,000
)
9.79

4.43
—

Outstanding at September 30, 2013
4,770,000

9.82

4.44
149,500

Exercisable at September 30, 2013
93,750

9.40

2.56
—

Expected to vest at September 30, 2013
4,676,250

$
9.83

4.48
$
149,500



The following is a summary of the Company's stock options outstanding at September 30, 2013:

Exercise Price
Number Outstanding
Weighted Average Remaining Contractual Term (in years)
Number Exercisable
Weighted Average Exercise Price
$
10.00

2,970,000

4.34
43,750

$
10.00

$
9.83

700,000

4.74
—

—

$
9.79

525,000

4.43
—

—

$
8.88

575,000

4.62
50,000

8.88

 
4,770,000

4.44
93,750

$
9.40



Stock-based Compensation Expense

Stock-based compensation expense related to all employee and non-employee stock-based awards was as follows for the three and nine months ended September 30, 2013 and 2012 (in thousands):

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
2012
 
2013
2012
Stock-based compensation expense:
 
 
 
 
 
Cost of services
$
—

$
—

 
$
—

$
—

Sales and marketing expenses
—

—

 
—

—

Product development
—

—

 
—

32

General and administrative
526

73

 
1,902

716

Total stock-based compensation expense
$
526

$
73

 
$
1,902

$
748


 
Warrants

At December 31, 2012, Row 44 had issued and outstanding warrants with various investors and partners to purchase up to 84,612,107 shares of its common stock with a weighted average price of $0.08 per common share and a weighted average remaining term of 4.92 years. Excluded from these warrants were 21,173,758 shares owned by AIA and eliminated in consolidation in conjunction with the Business Combination on January 31, 2013.

The following is a summary of activity for Row 44 warrants for common stock convertible into GEE common stock for the nine months ended September 30, 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 (in years)
Outstanding - January 1, 2013
84,612,107

$
0.0801

4.92
Granted
2,414,524

—


Exercised
(65,964,131)

0.0001


Forfeited
—

—


Outstanding - January 31, 2013
21,062,500

0.3214

4.03
Granted
—

—


Exercised
—

—


Forfeited
—

—


Outstanding - September 30, 2013
21,062,500

0.3214

3.37
Exercisable at September 30, 2013
21,062,500

0.3214

3.37


In conjunction with the Business Combination and on January 31, 2013, the Company converted 21,062,500 Row 44 warrants to warrants to purchase up to 721,600 shares of Global Eagle common stock. The following is a summary of all Row 44 warrants converted to warrants to purchase GEE common stock (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 September 30, 2013:

Weighted Average Exercise Price per Warrant (as converted)
Number of Warrants (as converted)
Weighted Average Remaining Life (in years)
Common stock warrants
$
9.45

721,600

3.37
Series C Preferred stock warrants
$
8.74

734,451

3.69


The following is a summary of Global Eagle warrants for the three and nine months ended September 30, 2013:

Global Eagle Warrants
Number of Warrants
Weighted Average Exercise price
Weighted Average Remaining Contractual Term (in years)
Outstanding at January 31, 2013
25,992,500

$
11.50

5.00
Granted
666,667

11.50


Exercised
—

—


Purchased
(500,000
)
11.50

 
Forfeited
—

—


Outstanding and exercisable at September 30, 2013
26,159,167

$
11.50

4.34


The following is a summary of all Global Eagle warrants outstanding at September 30, 2013:

Exercise Price per Warrant
Number of Warrants
Class of Shares
Weighted Average Remaining Life (in years)
 
$
11.50

18,492,500

Public Warrants
4.34
Total outstanding
 
18,492,500

 
 
 
11.50

666,667

Sponsor Warrants
4.32
 
$
11.50

7,000,000

Sponsor Warrants
4.34
 Total outstanding
 
26,159,167

 
4.34


During the nine months ended September 30, 2013, the Company purchased and retired 500,000 Global Eagle Public Warrants for a total of $0.8 million. The Company accounted for its 18,492,500 public warrants and 333,333 of the sponsor warrants as derivative liabilities at September 30, 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 18,492,500 public warrants and 333,333 of the sponsor warrants accounted for as derivative liabilities as of September 30, 2013.