Quarterly report pursuant to Section 13 or 15(d)

Common Stock, Stock Options and Warrants

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Common Stock, Stock Options and Warrants
 9 Months Ended
Sep. 30, 2014
Equity [Abstract]  
Common Stock, Stock Options and Warrants
Common Stock, Stock Options and Warrants

Common Stock

On June 17, 2014, PAR Investment Partners, L.P. (“PAR”) converted 19,118,233 shares of non-voting common stock of the Company into an equal number of shares of the Company’s common stock, par value $0.0001 per share, in accordance with the terms of the non-voting common stock set forth in the Company’s Second Amended and Restated Certificate of Incorporation. The conversion was exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 3(a)(9) thereof. No commission or other remuneration was paid or given directly or indirectly for soliciting the conversion. 
 
The common stock and non-voting common stock have identical rights, powers, preferences and privileges, except with respect to voting rights and conversion rights applicable to the non-voting common stock. Accordingly, the total number of outstanding shares of both common stock and non-voting common stock are used by the Company to compute basic and diluted net earnings (loss) per share. As a result of the conversion, the total number of outstanding shares of non-voting common stock decreased by 19,118,233, and the total number of outstanding shares of common stock increased by the same amount, with no shares of non-voting common stock remaining issued and outstanding. The conversion did not increase the aggregate number of outstanding shares of the Company’s capital stock.

In August 2014, the Company issued 28,161 shares of common stock as a working capital settlement to Row 44 former stockholders with an aggregate fair value of $0.3 million. The entire value was expensed during the three months ended September 30, 2014 and included in other income in other income (expense), net on the consolidated statements of operations.

Stock Options

In conjunction with the Business Combination, the Company adopted its 2013 Equity Incentive Plan, as amended, which was amended in December 2013 (as amended, the "Plan"). Under the Plan, 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 options, restricted stock, restricted stock units 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. Employee stock option grants have 5-year terms and vest 1/4th on the anniversary of the vesting commencement date and 1/36th monthly thereafter, over a 3-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 and/or termination without cause.

Fair values of the stock options at September 30, 2014 and 2013 were determined using the Black-Scholes model and the following weighted average level 3 assumptions:
 
Nine Months Ended September 30,
 
2014
 
2013
Common stock price on grant date
$11.42
 
$9.82
Expected life (in years)
4.00

 
4.00

Risk-free interest rate
1.54
%
 
0.99
%
Expected stock volatility
59
%
 
55
%
Expected dividend yield
—
%
 
—
%
Fair value of stock options granted
$5.15
 
$4.13


Stock option activity for the nine months ended September 30, 2014 is as follows:

Global Eagle Stock Option Plan
Shares
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Term (in years)
 
Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2014
5,285,000

 
$
10.86

 

 


Granted
1,885,000

 
$
11.42

 

 
 
Exercised
(117,708
)
 
$
9.33

 

 
 
Forfeited
(737,292
)
 
$
13.43

 

 
 
Outstanding at September 30, 2014
6,315,000

 
$
10.76

 
3.88
 
$
6.27

Vested and expected to vest at September 30, 2014
5,520,169

 
$
10.69

 
3.78
 
$
5.69

Exercisable at September 30, 2014
1,707,535

 
$
10.24

 
2.98
 
$
2.12



Restricted stock units

The grant date fair value of an RSU equaled the closing price of our common stock on the grant date. During the three months ended September 30, 2014, the Company granted certain employees performance units in the form of RSUs. A performance unit gives the recipient the right to receive common stock that is contingent upon achievement of specified pre-determined performance target for fiscal 2014 and the continuation of employment for a period of one year from the grant date. The number of shares issuable upon the completion of the performance period could be 0 shares, 38,843 shares or 77,687 share of the Company’s common stock contingent upon the level of achievement of the performance target. The following summarizes select information regarding our RSUs during the nine months ended September 30, 2014:

 
Units
 
Weighted Average Grant date Fair Value
 
Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2014
—

 
$
—

 
 
Granted
127,687

 
$
14.54

 
 
Vested
—

 
$
—

 
 
Forfeited
—

 
$
—

 
 
Balance nonvested at September 30, 2014
127,687

 
$
14.54

 
$
1.43

Vested and expected to vest at September 30, 2014
105,911

 
$
14.54

 
$
1.19



Stock-based Compensation Expense

Stock-based compensation expense related to all employee and non-employee stock-based awards for the three and nine months ended September 30, 2014 and 2013 were as follow, (in thousands):


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Stock-based compensation expense:
 
 
 
 
 
 
 
Cost of services
$
6

 
$
—

 
$
6

 
$
—

Sales and marketing expenses
14

 
—

 
14

 
—

Product development
53

 
—

 
53

 
—

General and administrative
1,823

 
526

 
6,412

 
1,902

Total stock-based compensation expense
$
1,896

 
$
526

 
$
6,485

 
$
1,902


 
Warrants

In conjunction with the Business Combination, 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, 2014:


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

 
721,600

 
2.37
Series C Preferred stock warrants
$
8.74

 
734,451

 
2.68


The following is a summary of warrants originally issued by GEAC, including public and privately placed warrants, for the nine months ended September 30, 2014:

Global Eagle Warrants
 
Number of Warrants
 
Weighted Average Exercise price
 
Weighted Average Remaining Contractual Term (in years)
Outstanding at January 1, 2014
 
23,237,717

 
$
11.5

 
 
Granted
 
—

 
—

 
 
Exercised
 
(3,400
)
 
11.5

 
 
Purchased
 
(403,054
)
 
11.5

 
 
Exchanged
 
(12,682,755
)
 
11.5

 
 
Forfeited
 
—

 
—

 
 
Outstanding and exercisable at September 30, 2014
 
10,148,508

 
$
11.5

 
3.34


On September 11, 2014, the Company completed an offer to all holders of the Company’s outstanding warrants exercisable for shares of the Company’s common stock, that were originally issued by GEAC and which have an exercise price of $11.50 per share (the “Warrants”), to receive 0.3333 Shares in exchange for every Warrant tendered by the holders thereof (approximately one Share for every three Warrants tendered), up to a maximum of 15,000,000 Warrants. On September 11, 2014, the Company issued 4,227,187 shares of common stock in exchange for 12,682,755 Warrants and recognized a gain on the exchange of approximately $0.8 million included in change in fair value of financial instruction instruments in the condensed consolidated statements of operations for the three and nine months ended September 30, 2014.

The Company accounts for 10,148,508 of GEAC's warrants as derivative liabilities at September 30, 2014. During the three and nine months ended September 30, 2014, the Company recorded approximately $5.3 million of expense and $0.6 million of income, respectively 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 trading days, the Company can call the 10,148,508 public warrants and force the holders to exercise their warrants at $11.50 per share, with estimated proceeds of approximately $116.7 million.

During the nine months ended September 30, 2014, the Board of Directors (the “Board”) authorized the Company to repurchase up to $25.0 million of GEE's public warrants. As of September 30, 2014, $23.6 million was available for warrants repurchases under this authorization. The amount the Company spends and the number of warrants repurchased varies based on a variety of factors including the stock price and blackout periods in which we are restricted from repurchasing warrants.