12. Share-Based Compensation

As of December 31, 2013, we maintained two share-based employee compensation plans: Gogo Inc. 2013 Omnibus Incentive Plan (the “2013 Omnibus Plan”), and The Aircell Holdings Inc. Stock Option Plan (the “2010 Plan”), (the “Stock Plans”). Our Stock Plans provide for the grant of both equity and cash awards, including non-qualified stock options, incentive stock options, stock appreciation rights, performance awards (shares and units), restricted stock, restricted stock units (“RSUs”), deferred share units (“DSUs”) and other stock-based awards to eligible employees, directors and consultants, as determined by the Compensation Committee of our Board of Directors.

Under the Stock Plans, 11,956,570 shares of common stock were reserved for issuance. As of December 31, 2013, 6,587,390 shares remained available for grant under our Stock Plans.

The contractual life of granted options is 10 years. All options that are unvested as of the date on which a recipient’s employment terminates, as well as vested options that are not exercised within a prescribed period following termination, are forfeited and become available for future grants. Options granted to date include options that a) vest 20% upon grant with the remainder vesting in equal annual increments over a four-year period, b) vest over a four-year period with 25% vesting at the end of each year or c) vest on the date of grant for options granted to directors. Beginning in 2013 we granted RSUs that vest in equal annual increments over a four-year period. Vested RSUs will be settled, at the discretion of the Compensation Committee, in shares of our common stock or in cash equal to the value of the applicable number of shares of our common stock on the vesting date. We also granted directors DSUs that were vested at grant. DSUs will be settled in shares of our common stock 90 days after the director ceases to serve as a director.

A summary of stock option activity for the year ended December 31, 2013, is as follows:


	Number of Options			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
Options outstanding—January 1, 2013		4,165,835		$	12.05		8.03	$	23,519
Granted		1,344,714		$	19.01
Exercised		(121,556	)	$	10.74
Forfeited		(153,133	)	$	12.31
Expired		(72,616	)	$	11.24

Options outstanding—December 31, 2013		5,163,244		$	13.89		7.50	$	56,502

Options exercisable—December 31, 2013		2,745,494		$	11.08		6.62	$	37,724

Options vested and expected to vest—December 31, 2013		5,033,649		$	13.77		7.46	$	55,682

There were no stock options exercised prior to 2013. As of December 31, 2013, total unrecognized compensation costs related to unvested stock options were approximately $14.7 million which is expected to be recognized over a weighted average period of 2.6 years. The total grant date fair value of stock options vested in 2013, 2012 and 2011 was approximately $4.1 million, $3.2 million, and $1.6 million, respectively.

We estimate the fair value of stock options using the BlackScholes option-pricing model. Weighted average assumptions used and weighted average grant date fair value of stock options granted for the years ended December 31, 2013, 2012, and 2011, were as follows:


	2013			2012			2011
Approximate risk-free interest rate		1.3	%		1.0	%		1.2	%
Average expected life		6.22-years			6.25-years			6.25-years
Dividend yield		N/A			N/A			N/A
Volatility		44.1	%		44.5	%		44.7	%
Weighted average grant date fair value of common stock underlying options granted	$	19.00		$	16.27		$	14.23
Weighted average grant date fair value of stock options granted	$	8.37		$	6.76		$	5.56

The risk-free interest rate assumptions were based on the U.S. Treasury yield curve for the term that mirrored the expected term in effect at the time of grant. The expected life of our stock options was determined based upon a simplified assumption that the stock options will be exercised evenly from vesting to expiration, as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected life. The dividend yield was based on expected dividends at the time of grant. The expected volatility was based on calculated enterprise value volatilities for publicly traded companies in the same industry and general stage of development.

The following table summarizes the activities for our unvested RSUs and DSUs for the year ended December 31, 2013:


	Number of Underlying Shares			Weighted Average Grant Date Fair Value
Unvested—January 1, 2013		—		$	—
Granted		45,611		$	26.26
Vested		(10,331	)	$	24.87
Forfeited/canceled		—		$	—

Unvested—December 31, 2013		35,280		$	26.67

Expected to vest after December 31, 2013		31,850

As of December 31, 2013, there was $0.9 million of unrecognized compensation cost related to unvested employee RSUs. This amount is expected to be recognized over a weighted-average period of 3.9 years. The total grant date fair value of RSUs and DSUs vested in 2013 was approximately $0.3 million. To the extent the actual forfeiture rate differs from what we have estimated, stock-based compensation related to these awards will be different from our expectations.

2007 Plan—ACM is a separate limited liability company (LLC) established solely for the purpose of granting ownership interests to members of management. The ownership interests granted via ACM represents a net profits interests plan and are referred to as the 2007 Plan. Prior to the distribution discussed below, ACM owned approximately 821,411 shares of our common stock. Each outstanding ACM unit represented a proportionate interest in the 821,411 shares of common stock, or 0.048413 shares of common stock per ACM unit. The 2007 Plan was initiated on March 1, 2007, and the initial grants under the 2007 Plan were deemed to occur on that date for accounting purposes, although more than 90% of the ACM units were committed prior to March 1, 2007. The initial grants had vesting periods that began at various dates between July 1, 2006 and March 1, 2007, based on the grantees’ employment dates. In accordance with the tax regulations associated with net profits interests plans, a plan participant who receives an ACM Unit only participates in the equity value created after the issuance of the ACM Unit to the participant. Approximately 13.8 million ACM units were granted with a vesting period commencing on July 1, 2006, and participate in the full value of the ACM unit. No cash is paid by the employee to us upon vesting of the ACM unit.

ACM units generally vested over a four-year period, and upon termination of employment, any unvested ACM units held by the participant were forfeited. As a practice, forfeited units become available for future grants. At December 31, 2012, 396,640 ACM units were authorized and available for grant. On December 18, 2013, the remaining ACM units previously forfeited and available to be granted, were granted to existing ACM unit holders still employed by or serving as a director in amounts determined by the Compensation Committee. As a result of this grant we recognized stock compensation expense of $0.5 million.

On December 18, 2013, ACM distributed 821,346 shares of our common stock owned by ACM, with each of the members of ACM receiving a proportionate distribution of our common stock based on the number of vested units they held. An immaterial amount of shares, representing the individual members’ interests in fractional shares, were paid in cash at the time of distribution. Subsequently these shares were canceled. ACM will be dissolved in 2014.

ESPP—In June 2013 the Board of Directors stockholders approved the ESPP, which became effective on June 26, 2013. The ESPP allows eligible employees to purchase a limited number of shares of common stock during pre-specified offering periods at a discount established by the Compensation Committee not to exceed 15% of the fair market value of the common stock at the beginning or end of the offering period (whichever is lower). Under the ESPP, 424,594 shares were reserved for issuance. No shares were issued under the ESPP in 2013.

Our share-based compensation expense totaled $5.6 million, $3.5 million and $1.8 million for the years ended December 31, 2013, 2012, and 2011, respectively.