Annual report pursuant to Section 13 and 15(d)

Stock Options, Common Stock and Warrants

v2.4.0.8
Stock Options, Common Stock and Warrants
 12 Months Ended
Dec. 31, 2013
Equity [Abstract]  
Stock Options, Common Stock and Warrants
Stock Options, Common Stock and Warrants

Common Stock

The following is a summary of activity of the Company's common stock for the twelve months ended December 31, 2013 (in thousands):
GEE Common Stock
Common Stock
 
Amount
 
Common Non-Voting Stock
 
Amount
Balance - January 1, 2013
23,405

 
$
2

 
—

 
$
—

Exchange of warrants for common stock
898

 
—

 
—

 
—

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
(103
)
 
—

 
—

 
—

Issuance of stock to former executive
104

 
—

 
—

 
—

Asset purchase of PMG
432

 
—

 
—

 
—

Issuance of common stock
15,793

 
1

 
—

 
—

Balance - December 31, 2013
55,902

 
$
5

 
19,118

 
$
2



During the year ended December 31, 2013, the Company acquired PMG assets in exchange for approximately $10.6 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 103,000 shares of common stock to settle certain employee tax withholding obligations associated with the Business Combination in January 31, 2013.

Stock Incentive Plans

Row 44 Plan

During the years ended December 31, 2012 and 2011, Row 44 had a stock option and stock purchase plan to attract and retain its employees (the "Row 44 Plan"). Pursuant to the Row 44 Plan and 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 1,496,699 Row 44 stock options outstanding under the plan, 1,392,491 were exchanged for shares of Global Eagle stock, 103,000 options were forfeited and 7,708 options were exchanged for cash of $22,000 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 December 31, 2011
306,000

 
$
4.38

 
6.91
 
$
—

Granted
1,395,000

 
—

 
—

 
—

Exercised
(5,000
)
 
—

 
—

 
—

Expired or Canceled
(27,000
)
 
—

 
—

 
—

Forfeited
(172,000
)
 
—

 
—

 
—

Outstanding at December 31, 2012
1,496,699

 
$
3.21

 
7.95
 
$
9,187

Exercisable at December 31, 2012
1,496,699

 
$
3.21

 
7.95
 
$
9,187

Granted
—

 
—

 
—
 
—

Exercised-cashless (Global Eagle)
(1,392,491
)
 
3.21

 
—
 
—

Exercised-cash
(7,708
)
 
2.91

 
—
 
—

Forfeited
(96,500
)
 
2.91

 
—
 
—

Outstanding - January 31, 2013
—

 
$
—

 
—
 
$
—



Fair values were determined on the grant date using the Black-Scholes model and the following level 3 assumptions for the years ended December 31, 2012 and 2011, respectively:

 
2012
 
2011
Stock Value (per share)
$
2.91

 
N/A

Weighted-average expected term
5.58 years

 
—

Risk-free rate
1.00
%
 
—

Expected stock volatility
48
%
 
—

Dividend yield
0
%
 
—



Global Eagle 2013 Plan

In conjunction with the Business Combination, the Company created its 2013 Plan (the "Plan"), and as amended in December 2013, the Administrator of the Plan, which is the compensation committee of the Company's board of directors, may grant up to 7,500,000 stock option, restricted stock, restricted stock unit 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, 2013, 2,111,023 stock-based awards were available for future grant under the Plan. Employee stock option grants have 5-year terms and employee stock options vest 1/4th on the anniversary of the vesting commencement date and 1/48th monthly thereafter, over a 4-year period. Stock options granted to our Board of Directors have 5-year terms and vest monthly over two years from the vesting commencement date. Certain stock option awards have accelerated vesting provisions in the event of a change in control or termination without cause.

After the signing of the Row 44 Merger Agreement and through December 31, 2013, the Company has granted 6,535,000 Global Eagle stock options to key executives, employees and board members which had a weighted-average grant date fair value of $4.33 per stock option. Fair values of the stock options at December 31, 2013 were determined using the Black-Scholes model and the following level 3 assumptions:

 
2013
Expected life (in years)
2.0 - 4.0

Risk-free interest rate
0.77% - 1.75%

Expected stock volatility
50% - 65%

Expected dividend yield
0.00
%


The expected term of stock options granted represents the weighted average period that the stock options are expected to remain outstanding. The Company determines the expected term assumption based on the employee's expected exercise behavior including combined with estimates of the post-vesting holding period. Expected volatility is based on historical volatility of peer companies in the Company's industry that have similar vesting and contractual terms. The risk free interest rate is based on the implied yield currently available on U.S. Treasury issues with terms approximately equal to the expected life of the option. The Company currently has no history or expectation of paying cash dividends on its common stock.

Stock option activity for year ended December 31, 2013 is as follows:

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
6,535,000

 
10.68

 
4.33
 
27,863,150

Exercised
—

 
—

 
—
 
—

Forfeited
(1,250,000
)
 
9.92

 
—
 
—

Outstanding at December 31, 2013
5,285,000

 
10.86

 
4.38
 
21,670,650

Exercisable at December 31, 2013
115,625

 
9.49

 
2.67
 
622,594

Expected to vest after December 31, 2013
5,169,375

 
$
10.89

 
4.42
 
$
21,048,056



In December 2013, the Company paid the former CEO of AIA (the “Executive”), who is also a Board member, $2.0 million in cash and 103,977 fully vested common shares under the Plan (the “Issued Stock”). The Executive also received a stock option grant of 25,000 in September 2013 for his service as a Board member, which vests monthly over two years beginning on the date of grant. During the year ended December 31, 2013, the Company recorded an expense of approximately $3.5 million associated with this obligation, of which approximately $1.5 million pertained to the Issued Stock and included as stock based compensation expense during the year ended December 31, 2013. During the year ended December 31, 2013, the Executive also forfeited 750,000 unvested stock options in conjunction with his departure as CEO of AIA in the same period.

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

Range of Exercise Price
 
Number Outstanding
 
Weighted Average Remaining Contractual Term (in years)
 
Weighted Average Exercise Price
 
Number Exercisable
 
Weighted Average Exercise Price
$14.55 - $16.06
 
1,075,000

 
4.98
 
15.10

 
—

 
$
—

$9.79 - $14.54
 
3,485,000

 
4.18
 
9.94

 
62,500

 
10.00

$8.88 - $9.78
 
725,000

 
4.44
 
8.97

 
53,125

 
8.88

 
 
5,285,000

 
4.38
 
10.86

 
115,625

 
$
9.49



Stock-based Compensation Expense

Stock-based compensation expense related to all employee and non-employee stock-based awards was as follows for the years ended December 31, 2013 and 2012, and 2011 (in thousands):

 
Year ended December 31,
Stock-based compensation expense:
2013
 
2012
 
2011
Cost of sales
$
—

 
$
2

 
$
7

Sales and marketing expenses
—

 
2

 
9

Product development
—

 
3

 
43

General and administrative
4,536

 
1,634

 
34

Total stock-based compensation expense
$
4,536

 
$
1,641


$
93


As of December 31, 2013, the Company had approximately $20.5 million of unrecognized employee related stock-based compensation, net of estimated forfeitures, which it expects to recognize over a weighted average period of approximately 3.03 years.

Warrants

Row 44 Warrants

During 2011, approximately 2.1 million warrants to purchase Row 44 common stock with an exercise price of less than $1.00 per share were exercised for total proceeds of $6,000. These shares were subsequently converted to approximately 2.1 million Global Eagle shares in the Business Combination.

In March 2012, Row 44 issued 0.2 million common shares, which were subsequently converted to approximately 0.2 million Global Eagle shares in the Business Combination, and granted warrants to the same supplier to purchase up to 0.7 million shares of common stock based on certain criteria at an exercise price of $8.76 per share. The warrants had a contractual term of 5 years from the date of issuance. At December 31, 2012, 0.3 million warrants remained unexercisable, which became fully exercisable in the first quarter of 2013. The shares and warrants were valued at their grant-date fair value, which was estimated to be $0.6 million and $0.3 million, respectively, which were recorded to cost of sales in 2012. The warrants were determined to be derivative liabilities, but were subsequently reclassified to equity in 2013 and upon completed certain performance criteria.

In connection with certain bridge loan financings issued in 2011 and 2012, Row 44 issued two separate warrants to purchase 1.7 million shares of its common stock each at an exercise price of $0.003 per share, totaling 3.4 million warrants. Both grants of warrants to purchase common stock were valued at $5.0 million each under the Black-Scholes valuation model using the level 3 assumptions below. This value was used in the calculation of the relative fair value of certain convertible bridge loans. In August 2012, 2.2 million of the common stock warrants granted in conjunction with these bridge loans were exercised for total proceeds of $6,000, which were subsequently converted to approximately 2.2 million Global Eagle shares in the Business Combination.

In 2012, Row 44 entered into a common stock purchase warrant agreement with a supplier that entitled the supplier to subscribe for and purchase up to 3.4 million shares of Row 44 common stock at an exercise price of than $0.003 per share. The warrants had a contractual term of 5 years and vest immediately upon the supplier providing and the Company accepting, at the Company’s sole discretion, a discount off of the list price for certain services and hardware. As of December 31, 2012, the number of warrants issued was 0.3 million. The warrants were valued at their grant-date fair value, which was estimated to be $2.9 million, and were vested immediately upon issuance.

Row 44 warrants issued during the years ended December 31, 2012 and 2011 were valued under the Black-Scholes valuation model using the following Level 3 assumptions:

 
2012
 
2011
Common Stock Value (per share)
$2.91 - $9.34

 
$
2.91

Expected Term
5-7 years

 
7

Risk-free Interest Rate
0.72% - 2.57%

 
2.57
%
Expected Stock Volatility
50
%
 
50
%
Dividend Yield
—
%
 
—
%


At December 31, 2012, Row 44 had issued and outstanding warrants with various investors and partners to purchase up to 2.9 million shares of its common stock with a weighted average price of approximately $2.34 per common share and a weighted average remaining term of 4.92 years. Excluded from these warrants were 0.7 million 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 three years in the period ended December 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 (in years)
Outstanding December 31, 2011
2,359,512

 
$
0.33

 
6.29
Granted
2,766,495

 
2.17

 
 
Exercised
(2,226,900)

 
0.00

 
 
Forfeited
—

 
—

 
 
Outstanding - December 31, 2012
$
2,899,107

 
$
2.34

 
4.92
Granted
82,721

 
—

 

Exercised
(2,259,931)

(1)
0.00

 

Forfeited
—

 
—

 

Outstanding - January 31, 2013
721,897

 
$
9.38

 
4.03
Granted
—

 
—

 

Exercised
—

 
—

 

Forfeited
—

 
—

 

Outstanding - December 31, 2013
721,897

 
$
9.38

 
3.37
Exercisable at December 31, 2013
721,897

 
$
9.38

 
3.37

(1) Warrants exercised in January 2013 and prior to the Business Combination were retroactively adjusted as if they were exercised as of January 1, 2009.

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 721,897 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 December 31, 2013:

 
Weighted Average Exercise Price per Warrant (as converted)
 
Number of Warrants (as converted)
 
Weighted Average Remaining Life (in years)
Common stock warrants
$
9.38

 
721,897

 
3.12
Series C Preferred stock warrants
$
8.74

 
734,451

 
3.44


Global Eagle Warrants

The following is a summary of Global Eagle warrants for the year ended December 31, 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

 
 
Exchanged for Global Eagle common stock
 
(2,921,450
)
 
11.50

 
 
Forfeited
 
—

 
—

 

Outstanding and exercisable at December 31, 2013
 
23,237,717

 
$
11.50

 
4.08


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

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

 
15,571,050

 
Public Warrants
 
4.08
Total outstanding
 
 
15,571,050

 
 
 
 
 
11.50

 
666,667

 
Sponsor Warrants
 
4.07
 
$
11.50

 
7,000,000

 
Sponsor Warrants
 
4.08
 Total outstanding
 
 
23,237,717

 
 
 
4.08


During the year ended December 30, 2013, the Company purchased and retired 500,000 Global Eagle Public Warrants for a total of $0.8 million. In addition and during the year ended December 31, 2013, the Company exchanged 2.9 million Global Eagle Public Warrants for 0.9 million shares of Global Eagle common stock, at a weighted average price per common share of $14.74 per share, for total value of $13.3 million. The total value of the warrant exchange included a discount of approximately $0.6 million that was recorded as an expense in the consolidated statements of operations in the same period.

The Company accounts for its 15,571,050 public warrants and 333,333 of the sponsor warrants as derivative liabilities at December 31, 2013. During the year ended December 31, 2013, the Company recorded approximately $64.8 million in expense in the consolidated statements of operations as a result of the remeasurement of these warrants at balance sheet date until exercised. The fair value of warrants issued by the Company has been estimated using the warrants' quoted public market price. In the event the Company’s closing stock price is at or above $17.50 for twenty of thirty consecutive days, the Company can call the 15,571,050 public warrants and force the holders to exercise their warrants at $11.50 per share, with estimated proceeds of approximately $179.1 million.

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 15,571,050 public warrants and 333,333 of the sponsor warrants accounted for as derivative liabilities as of December 31, 2013.