Quarterly report pursuant to Section 13 or 15(d)

Contingent Earnout Shares Liability

v3.21.2
Contingent Earnout Shares Liability
 9 Months Ended
Sep. 30, 2021
Embedded Derivative  
Contingent Earnout Shares Liability

11. Contingent Earnout Shares Liability

As part of the Business Combination, certain stockholders and employees are entitled to additional consideration in the form of Earnout Shares of the Company’s common stock to be issued when the Company’s common stock’s price achieves certain market share price milestones within specified periods following the Business Combination on December 21, 2020. The Earnout Shares do not have employment requirement and will be issued in tranches based on the following conditions:

1. If the closing share price of the Company’s common stock equals or exceeds $18.00 per share for any 20 trading days within any consecutive 30-trading day period prior to the two-year anniversary of the Closing Date (“$18 Milestone”), then the Company is required to issue an aggregate of 5.0 million shares of its common stock to holders with the contingent right to receive Earnout Shares. These Earnout Shares may instead be issued in the event of a Change of Control (as defined in the Merger Agreement) prior to the two-year anniversary of the Closing Date if the per share consideration in such transaction is at least $18.
2. If the closing share price of the Company’s common stock equals or exceeds $25.00 per share for any 20 trading days within any consecutive 30-trading day period prior to the four-year anniversary of the Closing Date (“$25 Milestone”), then the Company is required to issue an aggregate of 5.0 million shares of its common stock to holders with the contingent right to receive Earnout Shares. These Earnout Shares may instead be issued in the event of a Change of Control (as defined in the Merger Agreement) prior to the four-year anniversary of the Closing Date if the per share consideration in such transaction is at least $25.
3. If the closing share price of the Company’s common stock equals or exceeds $30.00 per share for any 20 trading days within any consecutive 30-trading day period prior to the five-year anniversary of the Business Combination Closing Date (“$30 Milestone”), then the Company is required to issue an aggregate of 5.0 million shares of its common stock to holders with the contingent right to receive Earnout Shares. These Earnout Shares may instead be issued in the event of a Change of Control (as defined in the Merger Agreement) prior to the five-year anniversary of the Closing Date if the per share consideration in such transaction is at least $30.

Pursuant to the guidance under ASC 815, Derivatives and Hedging, the right to Earnout Shares was classified as a Level 3 fair value measurement liability, and the increase or decrease in the fair value during the reporting period is recognized as other expense or other income in the condensed consolidated statement of operations accordingly. The fair value of the Earnout Shares liability was estimated using the Monte Carlo simulation of the stock prices based on historical and implied market volatility of a peer group of public companies.

As of December 21, 2020, the initial fair value of the Earnout Shares liability was recognized at $248.9 million with a corresponding reduction from the additional paid-in capital in stockholders’ (deficit) equity. As of September 30, 2021 and December 31, 2020 the fair value of the Earnout Shares liability was estimated to be $32.3 million and $133.5 million, respectively. The Company recognized a gain on the fair value change in Earnout Shares liability of $25.8 million and $101.2 million as other income (expense) in its condensed consolidated statement of operations for the three and nine months ended September 30, 2021, respectively.