Annual report pursuant to Section 13 and 15(d)

Stock Options, Common Stock and Warrants

v2.4.1.9
Stock Options, Common Stock and Warrants
 12 Months Ended
Dec. 31, 2014
Equity [Abstract]  
Stock Options, Common Stock and Warrants
Stock Options, Common Stock and Warrants
Common Stock
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 of common stock 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 instruments in the condensed consolidated statements of operations for the year ended December 31, 2014.
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 year ended December 31, 2014 and included in other income in other income (expense), net on the consolidated statements of operations.
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.
In December 2013, the Company issued 103,977 fully vested common shares of the Company's common stock to the former CEO of AIA (see Note 10).
In December 2013, the Company also issued and sold 13,340,000 shares of common stock at an issuance price of $14.25 per share in a public offering. A total of approximately $190.1 million in gross proceeds were raised from the offering.
During the year ended December 31, 2013, the Company issued 898,082 shares as a result of the exchange of 2,921,450 GEAC public warrants.
In October 2013, and in connection with the IFE Services acquisition, the Company issued and sold Putnam Equity Spectrum Fund 2,453,472 shares of the Company’s common stock in exchange for aggregate gross proceeds (before expenses) of approximately $21.0 million.
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, during the year ended December 31, 2013, 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.
On January 31, 2013 and in connection with the Recapitalization as a result of the merger with ROW 44, the Company issued a total of 20,123,000 shares of the Company's common stock, including 4,750,000 shares of non-voting common stock. In addition, in connection with the acquisition of 86% ownership of AIA, the Company also issued 14,368,000 shares of Company's non-voting common stock.
Stock Incentive Plans
Row 44 Plan
During the year ended December 31, 2012, 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:
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, 2014, there were 1,122,472 stock-based awards 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.
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, 2014, 2013 and 2012, respectively:
 
2014
 
2013
 
2012
Stock Value (per share)
$
11.53

 
$
10.57

 
$
2.91

Weighted-average expected term
4.0 years

 
3.9 years

 
5.6 years

Risk-free rate
1.5
%
 
1.1
%
 
1.0
%
Expected stock volatility
58
%
 
57
%
 
48
%
Dividend yield
0
%
 
0
%
 
0
%
Fair value of stock options granted
$
5.14

 
$
4.65

 
$
1.30


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, 2014 is as follows (in thousands except per share and contractual term data):
Global Eagle Stock Option Plan
Shares
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Term (in years)
 
Aggregate Intrinsic Value
Outstanding at December 31, 2013
5,285

 
$
10.86

 

 

Granted
1,970

 
$
11.53

 

 


Exercised
(430
)
 
$
9.76

 

 

Forfeited
(1,054
)
 
$
13.77

 

 

Outstanding at December 31, 2014
5,771

 
$
10.64

 
3.57
 
$
17,759

Exercisable at December 31, 2014
1,770

 
$
10.50

 
2.80
 
$
5,846

Vested and expected to vest after December 31, 2014
4,996

 
$
10.60

 
3.49
 
$
15,586


The following is a summary of the Company's stock options outstanding at December 31, 2014:
Range of Exercise Price
Number Outstanding (in thousands)
 
Weighted Average Remaining Contractual Term (in years)
 
Weighted Average Exercise Price
 
Number Exercisable (in thousands)
 
Weighted Average Exercise Price
$16.07 - $16.90
25

 
4.04
 
$
16.90

 
—

 
$
—

$11.44 - $16.06
932

 
4.07
 
$
13.67

 
218

 
$
15.20

$10.57 - $11.43
1,260

 
4.72
 
$
10.71

 
29

 
$
10.57

$9.88 - $10.56
1,953

 
2.63
 
$
10.00

 
944

 
$
10.00

$8.88 - $9.87
1,601

 
3.52
 
$
9.51

 
579

 
$
9.55

 
5,771

 
3.57
 
$
10.64

 
1,770

 
$
10.50


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 year ended December 31, 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 shares 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 year ended December 31, 2014:
 
Units (in thousands)
 
Weighted Average Grant date Fair Value
 
Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2014
—

 
$
—

 
 
Granted
113

 
$
14.75

 
 
Vested
(13
)
 
$
17.09

 
 
Forfeited
(41
)
 
$
16.73

 
 
Balance nonvested at December 31, 2014
59

 
$
12.90

 
$
811

Vested and expected to vest at December 31, 2014
53

 
$
12.90

 
$
723


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, 2014, 2013 and 2012 (in thousands):
 
Year ended December 31,
Stock-based compensation expense:
2014
 
2013
 
2012
Cost of sales
$
36

 
$
—

 
$
2

Sales and marketing expenses
46

 
—

 
2

Product development
268

 
—

 
3

General and administrative
7,717

 
4,536

 
1,634

Total stock-based compensation expense
$
8,067

 
$
4,536

 
$
1,641

As of December 31, 2014, the Company had approximately $13.5 million of unrecognized employee related stock-based compensation, net of estimated forfeitures, which it expects to recognize over a weighted average period of approximately 2.78 years.
Warrants
Row 44 Warrants
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 year ended December 31, 2012 were valued under the Black-Scholes valuation model using the following Level 3 assumptions:
 
2012
Common Stock Value (per share)
$2.91 - $9.34

Expected Term
5-7 years

Risk-free Interest Rate
0.72% - 2.57%

Expected Stock Volatility
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 two years in the period ended December 31, 2014:
 
Number of Warrants (in thousands)
 
Weighted Average Exercise price
 
Weighted Average Remaining Contractual Term (in years)
Outstanding - December 31, 2012
2,899

 
$
2.34

 
 
Granted
83

 
$
—

 
 
Exercised
(2,260)

(1)
$
—

 
 
Outstanding - January 31, 2013
722

 
$
9.38

 
 
Granted
—

 
$
—

 
 
Exercised
—

 
$
—

 
 
Forfeited
—

 
$
—

 
 
Outstanding - December 31, 2013
722

 
$
9.38

 
 
Forfeited
(32)

 
$
23.53

 
 
Outstanding - December 31, 2014
690

 
$
8.79

 
2.21
Exercisable at December 31, 2014
690

 
$
8.79

 
2.21

(1) Warrants exercised in January 2013 and prior to the Business Combination were retroactively adjusted as if they were exercised as of January 1, 2010.
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, 2014:
 
Weighted Average Exercise Price per Warrant
 
Number of Warrants (in thousands)
 
Weighted Average Remaining Life (in years)
Common stock warrants
$
8.79

 
690

 
2.21
Series C Preferred stock warrants
$
8.74

 
734

 
2.43

Global Eagle Warrants
The following is a summary of Global Eagle warrants for the year ended December 31, 2014:
Global Eagle Warrants
Number of Warrants (in thousands)
 
Weighted Average Exercise price
 
Weighted Average Remaining Contractual Term (in years)
Outstanding at January 31, 2013
23,238

 
$
11.50

 

Granted
—

 
$
—

 
 
Exercised
(3
)
 
$
11.50

 
 
Purchased
(403
)
 
$
11.50

 
 
Exchanged for Global Eagle common stock
(12,683
)
 
$
11.50

 
 
Forfeited
—

 
$
—

 
 
Outstanding and exercisable at December 31, 2013
10,149

 
$
11.50

 
3.09

The following is a summary of all Global Eagle warrants outstanding at December 31, 2014:
 
Exercise Price per Warrant
 
Number of Warrants
 
Class of Shares
 
Weighted Average Remaining Life (in years)
 
$
11.50

 
10,149

 
Public Warrants
 
3.09
Total outstanding
 
 
10,149

 
 
 
 

On September 11, 2014, the Company completed an offer to all holders of the Company’s outstanding warrants exercisablefor 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 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 consolidated statements of operations for the year ended December 31, 2014.    
During the year ended December 31, 2014, the Company also repurchased 403,054 Global Eagle Public Warrants for total cash consideration of $1.4 million. As of December 31, 2014, these repurchased warrants were not retired and were held by the Company.
During the year ended December 31, 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 10,148,508 and 15,904,383 public warrants as derivative liabilities at December 31, 2014 and 2013. During the years ended December 31, 2014 and 2013, the Company recorded approximately $7.0 million and $64.0 million in expense in the consolidated statements of operations as a result of the remeasurement of these warrants at the respective balance sheet dates 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 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.
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. As of December 31, 2014, all of the outstanding Sponsor's warrants classified in equity were exchanged into the Company's common stock.